Law and You > Business Laws > Indian Contract Act, 1872 > Interpretation Clause (S. 2 The Indian Contract Act, 1872)
Prior to the Indian Contract Act, English law of the contract was followed in India. The extent of modifications made in the Act as per the Indian conditions and its adaptability to the Indian economy. Before the act was enacted, the contractual relationship was governed by the personal laws of different religious communities like different laws for Hindu and Muslims. In this article, let us have Introduction to Indian Contract Act, 1872. In this article let us analyse interpretation clause of the Act.
Interpretation Clause:
Section 2 is interpretation clause and define some important words and expressions used in the Act in following senses unless a contrary intention appears from the context.
Proposal:
The term ‘Proposal’ is defined under Section 2(a) of the Act as “When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”
Explanation:
An offer to do or not to do something must be made for the purpose of being agreed to. If agreement from another party is not expected then it is just a piece of information in the form of simple statement or threat.
Scenario – 1: If A tells B “he is interested in buying his (B’s) car”. Then A is just giving information that he is interested in buying a car. It is not proposal
Scenario – 2: If A tells B “he is interested in buying his (B’s) car for ₹ 2 lakh. Will, you sell the car to me?” Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Thus this is a proposal.
Thus, Proposal = Offer + Expectation of an Agreement
Promise, Promisor, and Promisee:
Section 2(b) of the Act defines the term ‘Promise’ and and 2 (c) of the Act defines the terms ‘Promisor’ and ‘Promisee’. According to Section 2(b) of the Act, When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; According to Section 2(c) of the Act, the person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,
If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Now if B accepts the offer of ₹ 2 lakhs to sell his car to A. then the proposal is said to be accepted and it becomes a promise. As A has made the offer (proposal) A is called the promisor and B has accepted the proposal hence B is called the promisee.
Thus, Promise = Offer from offeror (Promisor) + Free consent from another party (Offeree / Promisee).
Consideration:
Section 2(d) of the Act defines the term ‘Consideration’ as “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. In this case, A is agreeing to pay ₹ 2 lakhs to B and in turn B is agreeing to give possession of his car to A. In this case, the car and ₹ 2 lakhs are the consideration for the promise.
Agreement:
Section 2(e) of the Act defines the term “agreement’ as “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
Thus, Agreement = Promise + Consideration
If A tells B “he is interested in buying his (B’s) car for 2 lakh rupees. Will, you sell the car to me?”. Here, with information, there is a consideration (₹ 2 lakhs) and expectation of agreement from B. Now if B accepts the offer of ₹ 2 lakhs to sell his car to A. There are reciprocal promises between A and B and there is legal consideration, then it is an agreement.
Reciprocal Promises:
Section 2(f) of the Act defines the term ‘Reciprocal Promises’ as “Promises which form the consideration or part of the consideration for each other are called reciprocal promises.”
Void Agreement:
Section 2(g) of the Act defines the term ‘Void Agreement’ as “An agreement not enforceable by law is said to be void.”
Contract:
Section 2(h) of the Act defines the term ‘Contract’ as “An agreement enforceable by law is a contract.”
Thus, Contract = Agreement + Enforceability of the agreement by law
Thus Contract = Offer from offerer + Free consent from another party (Offeree) + Consideration + Enforceability of the agreement by law
Voidable Contract:
Section 2(i) of the Act defines the tern ‘Voidable Contract’ as “An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”
A voidable contract, unlike a void contract, is a valid contract which may be either affirmed or rejected at the option of one of the parties. At most, one party to the contract is bound. The unbound party may repudiate (reject) the contract, at which time the contract becomes void.
For example, A shopkeeper (say A) sold a duplicate Ray ban glasses as an original brand to a customer (say B) at say ₹ 5000/-. Here offer was there. There was agreeing of the offer. There was a consideration. At the time of the purchase, it was a valid contract. Now B comes to know that the glasses are not of the original Ray ban brand. He approaches A and returns the glasses and ask for a refund of his money. Now, A sold duplicate glasses (fraud) to B, the contract becomes voidable.
Typical grounds for a contract being voidable include coercion, undue influence, misrepresentation, mistake or fraud.
Contract to be Void:
Section 2(j) of the Act lays that “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
A contract made by a minor is ab initio void.
These terms will be discussed in details in upcoming articles.
Conclusion:
The interpretation clause of the Indian Contract Act, 1872, plays a crucial role in clarifying the meanings of terms and provisions within the Act, ensuring that contracts are understood and enforced according to their intended purposes. This clause provides essential definitions and principles that guide the interpretation of various contractual elements, promoting consistency and predictability in legal agreements.
By establishing clear guidelines for understanding terms such as “contract,” “void,” and “voidable,” the interpretation clause helps reduce ambiguity and fosters a common understanding among parties engaged in contracts. This is particularly important in a diverse legal landscape like India, where varying interpretations could lead to disputes and uncertainty.
In conclusion, the interpretation clause of the Indian Contract Act, 1872, is vital for effective contract management and dispute resolution. It not only facilitates a clear understanding of contractual terms but also upholds the broader principles of justice and equity within the contractual framework. By providing a solid foundation for interpreting agreements, the clause contributes to the stability and reliability of commercial transactions in India.