CONTRACT LAW

HISTORICAL EVOLUTION
OF MODERN CONTRACT
LAW
PROF. ALISHA THOMAS
Historical Background Of Indian Contract Act 1872
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 and
subsequently came into force on the first day of September 1872.

The essence of the India Contract Act has been modeled on that of the English Common Law. It is
one of the most important legislation ever drafted by Britishers and the principles enacted therein are
nothing but the codification of the general principle governing transactional relationship because of
which it has seen seldom amendments.

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. Now, to understand the
contract act in its present form we have to analyze the historical evolution of contract law taking into
account the practices that were prevalent before the enactment came.
Historical Background Of Indian Contract Act 1872

Evolution of contract law different time periods

Vedic and Medieval 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.
During Chandragupta's reign, contract existed in the form of "bilateral transactions" between two individuals of group of individuals.
The essential elements of these transactions were free consent and consensus on all the terms and conditions involved.
It was laid down that the following contracts were void:
● Contracts formed during the night.
● Contracts entered into the interior compartment of the house.
● Contracts made in a forest
● Contracts made in any other secret place
● There were certain exceptions to clandestine contracts such as
● Contracts made to ward off violence, attack and affray
● Contracts made in celebration of marriage
● Contracts made under orders of government
● Contracts made by traders, hunters, spies and others who would roam in the forest frequently
Historical Background Of Indian Contract Act 1872

Roman period:
In early Rome, the law of contracts developed with the recognition of a number of categories of promises to be enforced rather
than creation of any general criteria for enforcing promises. Thus, the notion that promise itself may give rise to an enforceable
duty was an achievement of Roman law.
1. Stipulation (stipulatio):
It put into force formalities and dates from a very early time in Roman law. A party could make a binding promise called
"stipulation" in which the party observed a prescribed form of question and answer. Though the participation of both
parties was required, only one party was bound.

2. Real Contracts:
These were those that suited to executory exchange of promises. For example, the contract of loan, in which the recipient's
promise to restore the subject matter was binding.

3. Consensual Contracts:
These were more flexible and did not hold a legal basis for enforcing purely executory exchanges of promises. They
deviated from the formalities in "stipulation" and in agreement alone, without delivery, sufficed to make the promises
binding. Although they were limited to four important types of contracts- sale, hire, partnership and mandate.
 Historical Background Of Indian Contract Act 1872

Roman period:
4. Innominate Contracts:
These were agreements under which one party was promised to give or do something in exchange for a similar promise by the other party. Unlike both real
and consensual contracts they were not limited to specified classes of transactions and were therefore called in nominate.

The enforceability of the promise required some performance given in exchange and was called quid pro quo (i.e. the modern concept of consideration of the
contract). But these contracts were limited because they were binding only when one of the parties had completed performance and until that happened either
party could escape liability.

5. Dotis dictio:
This was related to dowry agreement between bride and groom. In this contract, the father of the bride or the bride herself set forth amount and nature of
dowry to be governed to be groom and its declared in presence of the groom. Since this was a social agreement. There was not any punishment in case of
breach of contract, the only remedy that the groom family has in case of breach is to compel the bride`s family in fulfilling the contract.

6. Lex Mancipi:
This contract was equivalent to the modern day's contract of transfer of property.

7. Fiducia:
It was an ancillary contract to the above form of contract.

8. Uadimonium:
This contract was similar to today`s contract of guarantee.
Historical Background Of Indian Contract Act 1872

Islamic period
During the Muslim rule in India, all matters relating to contract were governed under the Mohammedan Law of Contract. The
word contract in Arabic is Aqd meaning a conjunction. It connotes conjunction of proposal (Ijab) and acceptance which is (Qabul).

A contract requires that there should be two parties to it one party should make a proposal and the other accept it, the minds of
both must agree that is there declaration must relate to the same matter and the object of contract must be to produce a legal result.

The unlawful transactions were considered void beginning under Muslim laws:
1. Riba Al-Fadl:
In this case it's a contract which produced unlawful excess in exchange of counter values in a contemporaneous
transaction.
2. Riba Al-Nasi`a:
Which means contract which produced unlawful gain without completing the exchange of counter values.
3. Riba Al-Jahilya:
Its also called pre-historic riba. Where the lender asks the borrower whether he will settle the debt or increase the debt.
Another type of transaction that was prohibited under Muslim laws and the same stance was taken under the Indian Contract Act
were the contract related to gambling, contingent contract or wagering contract.
 Historical Background Of Indian Contract Act 1872

Islamic period
The formation of a contract according to Islamic law does not require any kind of formality, the only requirement is that the express consent of
both parties, the proposal and acceptance must be made of the same thing in the same sense.furthermore, the Islamic classifies as per their
special features and following are the type of contract. Alienation of property:
1. for an exchange like sale
2. without exchange like giving a simple gift
3. to create succession namely request
The ground of dissolution of contracts are as follow:
1. Invalidation of mutual agreement
2. Cancellation of contract by death of either party or destruction of subject matter or expiry of time period.
3. Cancellation by termination by either party
4. Dissolution by termination of the contract
Another thing to be noted is that under Islamic Law even marriages (Nikah) were treated as contracts and till date the situation remains the
same. Either of the parties to the marriage makes a proposal to the other party and if the other party accepts, it becomes a contract and the
husband either at the time of marriage or after it has to pay an amount to the wife as a symbol of respect known as Mahr.

Also the Mahommedans were the firsts to recognize the concept of divorce. This way, a party to marriage could absolve itself of the
contractual obligations under marriage. Muslim marriages are thus considered contracts for these reasons.
Historical Background Of Indian Contract Act 1872

Hindu period
The Jurisprudential aspect of the Hindu law is fundamentally different from that of English law's
jurisprudence. Hindu law is the result of the compilation of numerous customs and works of
Smritikaras, who interpreted and analyzed Vedas to develop the various aspect of Hindu law.
Manusmriti in regarding the contract law dealt with the incompetence to enter to contract.

It laid down the principle which is also followed in the Indian Contract Act, states that a contract
entered by a minor, or intoxicated person or an old man or the cripple is not valid
contract.Regarding the contract by minor, under Narada smriti an infant is considered is
someone who is between in the stage of an embryo to up to 8 years. After that from 8 years to 16
years the child is considered as boyhood and after 16 years the person is competent to enter into
a contract. So it can be concluded that the stage of majority to enter into a contract is 16 years, 2
years less than what has been prescribed under The Indian Contract Act.
 Historical Background Of Indian Contract Act 1872

British period
Before the advent of the Indian Contract Act, The English Law was applied in the Presidency Towns of Madras, Bombay and Calcutta under
the Charter of 1726 issued by king George to the East India Company. Now, since no system can afford to make all promises enforceable, the
English tried out two assumptions:
One, the assumption that promises are generally enforceable, and then create exceptions for promises considered undesirable to enforce.

Secondly the assumption that promises are generally unenforceable, and then create exceptions for promises thought desirable to enforce.

But in the case where one of the parties is from either of the religion like if one party is Hindu and other is Muslim then, in that case, the law of
the defendant is to be used. This was followed in the presidency towns, but in cities outside the presidency towns, the matter was governed by
justice, equity and good conscience.

This procedure was followed until the time the Indian Contract Act was implemented in India. In the years 1862, the introduction of the High
Courts took place in the town of Bombay, Calcutta, and Madras and the charter of these High Courts also contained the same provision as
pervious law that High Courts to apply the personal laws of the respective religions before rendering any judgment in respect to the contract
cases.
 Historical Background Of Indian Contract Act 1872

British period
15TH CENTURY- TWO FORMS OF ACTION FOR ENFORCING RIGHTS
A) COVENANT: Equivalent to current definition of contract. It mainly concerned breaches of agreement for services like building or for
sale or lease of land. Here the primary claim was performance however the defendant is required to keep the agreement but the
judgement ceased to order specific performance and damages were awarded instead.
B) DEBT: it was basically on movable property and for fixed sum of money. It covered claims for the price of goods sold and delivered.
The claim was for money compensation for benefit received. Since the debtor’s action is based on quid pro quo therefore it would be
unjust to allow the debtor to retain it without paying for it.
LACUNA: Defendant might avoid liability by a procedure known as “wager of law” wherein he denied the debt under oath. There were oath
helpers who swore on defendant’s behalf that defendant was telling the truth.
16TH CENTURY
DEVELOPMENT OF ASSUMPSIT
Ques- How common law would break this mould of wager of law?
Ans: Developed a liability in torts: if a person undertook to perform a duty and while performing it caused harm to the obligee; the obligee
could sue on the common law action of ‘TRESPASS ON THE CASE”-ASSUMPSIT PRINCIPLE- means defendant undertook. Assumpsit
was an action for recovery of damages by reason of the breach or non-performance of a contract. At the end you have to restore the person in
same position as he would have been, had the promise never been made.
Historical Background Of Indian Contract Act 1872

British period
17TH AND 18TH CENTURY
Recognition of the transferability of contract rights as kind of property. Concepts like freedom of contract,
welfare of parties and society’s good emerged.
Historical Background Of Indian Contract Act 1872
The Advent of The Indian Contract Act
The Indian Contract Act as applied today's was drafted originally by the third Indian Law Commission in the year 1861 in England
under the stewardship of Sir John Romilly. Final draft was modified by Sir Fitjames Stephen and Fredrick Pollock. It was
basically English Law with modifications suitable to India. The Indian Contract Bill tried to defined laws relating to Contracts,
Sale of movable properties, Indemnity, Guarantee, Agency, Partnership and bailment.

The bill was not the complete law of contract, but the aim of the bill was to suffice the need of the country for a considerable
period of time and during that period, judges of the courts were taking the help of English laws in determining the case when they
failed to arrive at the judgments by considering the justice, equity and good conscience. once a person made a promise he has to
perform it the last day of your life.

Though it may seem that a rigid principle like this would make sense, some exceptions have to be provided or else it would be a
gross injustice to the community. Even with the vice-like this, the contract law came into effect. The drafter of the bill knew that
different religious people followed personal laws and for them it will be difficult to abide the new rules so that the special customs
of the personal laws governing any aspect of the contractual relationship would not be affected by new rules, unless or until they
are not contrary to the new rules.

The act came into effect in 1872 but soon afterwards amendments were made in that regard, which repealed section 76 to 123
dealing with the sales of goods act and separate legislations were enacted called Sales of Goods Act 1930' to govern that area.
Also, section 239 to 266 dealing with partnership was repealed and new legislation was enacted called Indian Partnership Act
1932.
Historical Background Of Indian Contract Act 1872

Modern Contract Law

Accelerating industrialisation, scientific innovation, economic entrepreneurship
and increase in access to labour and capital lead to boom in trade and that
ultimately lead to development of areas of law such as contract, commercial and
company law.
Concepts like freedom of contract and free market emerged. There was rise in
the concept of consumer welfarism rather than market individualism. Consumer
protection, principles of fairness and reasonableness were recognised.