Contrast Between Indian & English Contract Law

By Sanjeevani

From sending texts early in the morning to having a coffee late at night at a café, we engage in making contracts in our day-to-day life. We enter into a huge number of transactions daily of which some are entered consciously with proper knowledge of the intricacies and some are entered with no serious intention to fulfill the obligations. Every country has its law that regulates such type of agreement-making behavior of its citizens. Here, in this short piece of writing, we will try to contrast two such laws, the Indian Contract Act 1872 and the provisions of English contract law. We will try certain doctrines which set these two acts apart.

Damages

Section 73 of the Indian contract act sets the base for compensation or damages which arise as a natural obligation to the offenders in case of a breach of any contract and Section 74 talks about the concept of unliquidated or remote damages which are at some times referred to as penalties. The Indian contract act provides for general liquidated damages which is the norm unless an exceptional case arises where giving the unliquidated damages becomes a necessity. Remote damages which are unforeseeable in the due course of making a contract are not awarded as per the law in India.

 In contrast to this English law is more flexible and can extend up to providing unliquidated or remote damages to the party who has suffered the loss. English law talks about an aspect called the “consequential loss” which does not restrict its scope to just the damages which the parties can prove arising naturally out of the direct losses suffered. The concept of such damages was also discussed in the British sugar case and Hadley v. Baxendale. It also talks about three different types of damages known as the expectation interest, reliance interest, and restitution of interest. In English law, the sufferer party need not prove the actual damage caused. The pre-decided breaches in the contractual agreements are awarded. The leading cases of liquidated damages in India have been Maula box v. Union Of India (1956) and oil and Natural Gas Corporation v. Saw Pipes (2003).

Contracts Without Consideration

Consideration is defined as any commodity, service, or promise which might have some value attached to it. A contract without a lawful consideration under Section 2(d) and a lawful subject is considered to be void under the Indian contract, exceptions for which are provided under Section 25 of the ICA, 1872, which is not the case under the English contract act which accepts the contracts without consideration in certain circumstances. Such contracts are not legally enforceable under the ICA. However, no value quantifier has been attached to such a consideration. Also, past considerations have been regarded as a valid form of consideration under Indian law. The concept of third-party considerations was also discussed in the Indian caselaw Chinnaya v. Rammya. The case rested on the principle of third-party beneficiaries.  

English law does not follow the principle of past consideration. It accepts present and future considerations. Even in English law consideration need not be proportional to the return in a contract, its mere value in the eyes of law is the only requisite. This principle was supported in an English case known as Chappel and Co v. Nestle Co Ltd. 

Restrictive Covenants

As clarified by the term itself, restrictive covenants put a restriction on the contracting parties to perform certain actions as a consequence of coming into a particular contract. Such contracts can be in restraint of employment or in the restraint of trading certain commodities or trading with a particular entity. The Indian law presumes such restrictions to render a contract void as they disrupt the healthy market competition and are invalid on public policy grounds as well. Both non-compete and non-solicitation agreements are covered under this ambit.  Ignorance to a restrictive covenant can lead to potential damage claims in addition to the losses accumulated through an injunction granted. According to experts, India needs to recognize non-compete restrictions. Parties must have a clear say in involving any kind of trade-related restrictions given under article 27 in the ICA and also adding clauses like the ways of dispute redressal and such agreements should not be considered in restraint of legal proceedings under section 28 of the ICA. Some of the related case laws are Niranjan Shaankar Golikari v. Center for Spinning and Manufacturing Company Limited and Krishna Murgai v. Superintendence Company of India(1979). In the case of the Association of Unified telecom service providers of India v. Union Of India (1984), the supreme court upheld the validity of a restraint covenant made in good faith.

 Well, this is not the case in many international contract jurisdictions including English law though there has been a constraint on the scope of such covenants. In English legal history restrictive covenants have been accepted but the ones with a narrow and bonafide scope. Too broad covenants have not been entertained in the English case laws.

Relevance of Written Contracts

The Indian contract does not bind the contracting parties to write down the contract deed to make it legally enforceable. Oral contracts are also given legal sanctity in the eyes of Indian law except for the contracts for the sale of land which are required to be registered. Section 17 of the Indian registration act, 1908 contains the provisions for such registrations of immovable property which are values above Rs.100. There is no separate legislation that covers the sales of goods and services whereas contrary to this the English service contracts are governed by UCC and common law. The English law also recognizes the oral contracts which might be made informally. The legal force is given to oral contracts in both the legislations. 

Capacity to Contract

Under English law, it’s prima facie presumed that the contracting parties were in a capacity to contract during the formation of the contract. An incompetent party in a contract will result in making invalid contracts. The mistake of law is not given recognition in both the Indian and English legislations. Minors are deemed as incompetent to contract, keeping the reimbursement provisions in place in case of goods of necessity provided to the minor. A lunatic person when entered into a contract makes the contract voidable at the option of the party with whom he/she makes the contract. Intoxicated individuals are presumed to be incapable of entering into any contractual obligations. 

As per section 11 of the Indian contract act 1872, the competency to a contract has three broad elements the major age, soundness of mind, and disqualification from entering into a contract. The major difference between the two legislations is the onus of proof which rests with the accusing party to prove the sanity or insanity of the alleged accused whereas in English law an individual is presumed to be sane as a prerequisite of entering into a legally binding contract. 

Conclusion

Since being framed a long time back the Indian contract act,1872 needs a revaluation following the evolved context of the present times. Certain provisions like the privity of contract and the covenant restrictions need to be relaxed. As more and more contracts are being concluded day by day and the rising number of transactions in place, certain provisions of the old act need to be made more flexible to accommodate the newly added changes. With the advent of globalization and digitization, practices such as E-filing of contracts need to have proper legal backing which is still lacking in the ICA. Some provisions are being followed as a follow-up to the recent court judgments but are not yet codified. Issues have also been raised in the past upon the negotiation power of the parties who are entering into a contract, such intricacies need to be recognized and sorted out at the earliest. A more practical approach needs to be adopted so that the legislation can cover the wider scope of broad agreements being formed in the contemporary context.