Parties to Contract & Their Obligation under the Indian Contracts Act, 1872: Law Circa

Parties to Contract & Their Obligation under the Indian Contracts Act, 1872

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What are the parties to contract?

Every contract must have at least two parties to a contract i.e. offeror and acceptor, also referred to as the offeree. The contract comes into existence when one of the parties makes an offer or proposal to the other and hence is termed as the offeror.

The other party, after considering the offer or proposal made to it and in its capacity when provides its acceptance in terms of such an offer is termed as the acceptor or offeree and hence the contract comes into existence.

OFFEROR 

The offeror initiates the course of action for the formation of the contract, by expressing his will or desire to enter into a contractual relationship with the party to whom such an expression or communication has been made. 

He makes an offer to perform a promise in consideration of reciprocation from the other party and hence is equally bound to fulfil his obligations towards the other party. He may make an offer either express or implied. The offer may also be made towards one person in specific or could be an open offer or general offer i.e. open to all. 

OFFEREE 

The offeree is the party, to whom the offer is made and it is through their acceptance that a contract comes into existence. He makes an acceptance towards the consideration or performance of a promise that is being offered to him by the offeror in return of a reciprocation. The acceptance made by him can be communicated to the offeror either implied or express. He is also bound to fulfil his obligations towards the other party. The acceptance made must be within a stipulated time, if provided by the offeror or within a reasonable time period. 

Obligations of Parties to a Contract to Perform their Promises

The purpose or essence of any promise, agreement or contract lies in the performance of the obligations that both the parties have towards each other.  As per the Indian Contract Act[i] section 37, the parties to a contract must either perform or offer to perform their respective promises, until and unless such a performance has been dispensed or excused under the provisions of the Act, or under any other law.

Promises also bind the representatives of the promisors to the contract in case of death of a promisor before the performance, unless the contrary has been provided in the contract.

Example

For example, A and B entered into a contract with each other for the delivery of some goods at the fixed price of Rs 10,000. The goods were to be delivered by A, however; he died before the delivery could be completed. In such a case A’s representatives would be bound to deliver the goods to B and hence B will be bound to pay them the 10,000 Rs that had been promised to A.

In a different situation, A promises B to paint him a portrait of his wife for a sum of Rs. 20,000 however, he dies before completing the said portrait. In such a situation B cannot compel A’s representatives to paint him the portrait and neither can the representatives compel B to pay the 20,000 Rs.

1. Withholding part of the performance of the contract to compel the other party into fulfilling its part of the promise 

In certain scenarios, one of the parties may withhold part of their performance as a means to compel the other party into fulfilling their promise.

M. Kamalakannan v M. Manikanndan[ii] 

In this case, the buyer of the property retained some money so as to compel the seller to perform certain obligations, like evicting tenants and handing over vacant possession. The contract entered by the two parties recorded the sale with consensus ad idem. The court said that non-payment of the part of the sale consideration would not affect the contract in its entirety, since it was a concluded contract.

It must also be noted that parties to a contract can only be compelled to fulfil those obligations that have been decided as a part of the contract and not anything else.

2. The obligations arising from the contract must be co-extensive to the contract, not less and not more 

Govind Prasad Dalmia v W.B. SEB[iii]

 In this case, the goods had been decided to be delivered at a specific rate, and there had been no evidence to the contrary. The supplier delayed the deliveries of the goods under the expectation that the escalated prices of the goods will be paid. However, the buyer refused to pay the escalated price other than which had already been decided. The court held the contract to be valid and the deduction from the bill of escalated prices to be correct. A breach of contract was not held to be valid in this case.

3. The submission of a tender is not an offer 

Another important fact is that t submission of a tender is a proposal and not a contract. When a tender is submitted in response to an invitation to offer, it is considered to be an offer or a proposal and not a contract made in response to an invitation to make an offer for the completion of some projects at specified rates. It is required that the tender is accepted for a contract to come into existence. Therefore, a withdrawal of a tender before its acceptance does not entail a breach of a contract and merely submitting a tender does not give rise to any contractual obligations. 

Duties of representatives

Under the Indian Contract Act, the representatives of the parties are bound to fulfill the obligations of the contract in case of death of either of the parties, unless a contrary intention has not been specified in the contract.

Basanti Bai v Prafulla Kumar Routrai[iv] 

In this case, the Cuttack High Court concluded that the principle of representatives bound to fulfil the promise of the dead parties would apply even if the promisor has left no legal heir behind. According to the court, if the contract is legal and enforceable, then even if one of the parties has died without an heir, the persons acquiring interest over the subject matter of the contract would be bound to fulfil the obligations arising out of the contract and can be compelled to specific performance of these obligations.

Clause of renewal

A clause of renewal would mean the contract would be renewed for another term, between the same parties to the contract, under the same conditions for a given term or purpose.

Hardesh Ores (P) Ltd v Hede & Co.[v]

In this case, one of the parties to the contract invoked the clause of renewal contained in the contract. However, the other party refused such a renewal. The Supreme Court in this case that held that the best course for the party was to get the right to renewal declared and enforced by the court of law or to get the declaration that the agreement stood renewed as contemplated by the renewal clause.

ENDNOTES

[i] Indian Contract Act Section 37

[ii]  (2011) 4 CTC 139

[iii] AIR 2015 NOC 1084 (Cal)

[iv] (2006) 101 Cut LT 686

[v] (2007) 5 SCC 614

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