Decoding Section 29 Of Indian Contract Act, 1872
The Indian Contract act, 1872 is the principal law regulating the contracts and
agreements in the Indian Subcontinent. It is also one of the oldest legislations
enacted in India by the British government. The Act provides guidelines for
forming a valid contract and it frames and validates the contracts or agreements
between various parties. The act came into force on 1st September, 1872 and
extends to the whole of India including Jammu and Kashmir.
Indian Contract act defines a contract under S 2 (h)[1] – "An agreement enforceable by law is a contract."
The act also defines void contracts under S 2 (g)[2] - "An agreement not enforceable by law is said to be void."
These contracts are not enforceable i.e. they cannot be enforced in a court of law. There are several reasons for a contract to be declared void like absence of consideration (S. 23), lack of communication of acceptance (S. 3) etc.
One of the reasons for a contract to be declared unenforceable or void is due to uncertainty of the terms of the contract. Section 29 of the Indian Contract act, 1872 deals with contracts with uncertainty.
With the advent of contracts, there was also a rise or abridgment in the contractual law and obligations. There were contracts which were perceived to be uncertain in nature. But, definition or scope of uncertain remained uncertain. It has developed over many case laws with the emergence of time. What was sought to be uncertain is not always uncertain on the face of and can be made certain with proper machinery or by deriving the intention of the parties.
This project aims to scrutinize the scope of S. 29 of the Indian Contract act, 1872 with reference to several case laws pertaining to the same. The scope of contracts under section 29 includes a lot of agreements like Agreement to agree/negotiate, Preliminary Negotiations taking place etc. Further, A Special reference has been given to the case of Puspabala Ray v. Life Insurance Corporation of India pertaining to section 29.
Section 29 Of Indian Contract Act, 1872
Section 29 of the Indian Contract act is concerned with the uncertainty of contracts. It reads as follows:
"Agreements void for uncertainty.—Agreements, the meaning of which is not certain, or capable of being made certain, are void."
As this definition states that any uncertain contracts are declared void under the eyes of the law.
The importance of a contract to be certain in nature was reiterated in the case of Scammell v. Ousten.[3] The facts of the case revolved around a contention whether the parties agreed to the "Hire- purchase agreement" or not while forming the contract. The contract was limited to the point that Ousten would pay Scammel the stipulated price of the motor van based on the hire-purchase agreement.
There wasn't any point in the agreement which indicated the meeting of minds of the two parties or for the court to derive the same. The case went to the trial judge where Ousten was awarded and the contract was upheld. Scammel appealed it in the House of Lords where it was overturned in his favour and the court found that "clause regarding the hire-purchase terms was so vague that there could not be a precise meaning derived from."
Lord Wright, while writing in his judgment, stated that "It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, and that promises and performances to be rendered by each party are reasonably certain."[4]
The derivation of the intention of the parties is attributed to the enforceability of the contract. If the intention is not ascertained then the contract is deemed to be unenforceable in the eyes of law.[5]
The basic reason behind the same can be that if a contract has to be enforceable to be legal, it has to be formed in a way which could be understood by the court. Otherwise the scope of court providing justice will become diminished. Therefore, for court's scrutiny, the contract also has to be precise to its meaning and should echo the intention of the parties making it easier for the court to understand the frame of minds of the parties and grant an appropriate order.
Thus, a certain agreement is an important aspect of a contract to be formed. The court should have a reasonable belief that the parties had consensus ad idem and an intention to contract to start the proceedings and do justice to the parties.
Case Laws Pertaining To Section 29
Section 29 elucidates the importance of a contract to be certain in nature. An essential requirement is also that the terms should be explicit on the face of it (Although the implied intention/ terms is another case).
For example: Mr. A offers to buy 10 tons of oil from Mr. B. He is an oil seller with almost 10 kinds of varieties of oil. Here, It cannot be ascertained which kind of oil is needed to Mr. A from Mr. B. So it is clear on the face that the intention of the parties cannot be ascertained leading to uncertainty of the contract.
In Turn, If Mr. A clears that he needs olive oil from Mr. B and then intends to create a contractual obligation, this will lead to a certain contract.
A contract can however be considered as certain when: ⅰ) Intention of the parties can be determined ⅱ) Reasonableness can be used.
In the cases where the clause is not stated explicitly but still can be determined is not ruled as uncertain. If the intention of the parties can be determined, the contract is held to be certain.
For example, an agreement for sale of land with the name of the land, but without its survey number or area, was not void for uncertainty.[6] In this case, although there was no explicit mention of the land including survey no. , It could be determined that the land what the parties were talking was the same what parties thought and there was "Meeting of Minds".
The determination should be so much so as to make the contract enforceable under the law. Where a portion out of a larger extent of land was agreed to be sold but without specification of the area or boundaries; the terms regarding description being uncertain and vague, the court was not issue a decree which would not be capable of enforcement.
Here, the court cannot arrive at a decision regarding which land is talked or which was agreed by the parties therefore it was held as uncertain.[7]
In the case of contracts which seem uncertain but where the reasonableness can be applied, the contract may not be held liable as uncertain. In other terms, if nothing is specified under the terms of the contract & law can take over to fill the gap, then the contract is not be held as uncertain. For example, where the price is left to be fixed by a third party, there is no uncertainty in the contract as section 9(2)[8] of sale of goods act, 1930 will apply and the reasonable price shall be payable.[9]
Section 9(2) of the sale of goods act deals about the ascertainment of price:
"Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case."
The provision clearly speaks that the contract reasonable price is to be paid and the same depends on the facts of the case.
However, the main function of the court in these cases in not to determine the intention of the parties but what the parties intended during the course of making the agreement. The court should refrain from interpreting or deriving the agreement in their own terms and no external evidence should be put to ascertain the intentions.
Agreements capable of being certain:
"Partially certain" Contracts
Contracts need not always be explicit in nature. Contracts may also be elastic in nature i.e. they may be capable of being certain. The contracts which are capable of being made certain are not void under this section.[10] The legal maxim "Id certum est quod certum reddi potest" states that "something is certain which can be made certain".
The making certainty has to be done by the court who has to derive the intention of the parties while forming the contract. The court also in this case cannot supply any extrinsic evidence to the contract and determine the intention of the parties according to the language of the document.[11] Even oral agreements will not be held uncertain or vague if its terms are ascertainable with precision.
For example: In a case where parcel delivery was scheduled for four o'clock where it is not specified whether the time is 4 a.m. or 4 p.m. The agreement can still be respected because this is a minor ambiguity that can be rectified. Also, the reasonability would apply as the delivery of a parcel is generally not at 4am and it may also create private nuisance to the person.
Also, some terms maybe implied in a contract which does not make it void. The implying terms make the contract valid. If the nature of the terms can be ascertained by implication, then it will be held valid.[12]
For example: Mr. A used the rickshaw to go to point X. There was no written agreement and Mr. A sat in Rickshaw. As a result, he is obligated to pay for the ticket and it is implied that the contract is formed in this case when both of them did not counter the terms of the contract.
However, even in this case, the court has to be conscious while making the contract and should not make a contract for the parties. Anything vague should not be flashed out by imaginative accretions or flights of fancy.[13]
Types of Contracts under Section 29
Contracts containing the clause "If necessary"….?
Section 29 states uncertain nature of contracts and the validity of the same. Contracts which contain the clause "If necessary" in the terms was settled in one of the cases - Dhanrajamal Gobindram v. Shamji Kalidas & Co.[17]
The facts of the case includes an agreement between the buyer (Dhanrajamal Gobindram) and sellers (Shamji Kalidas & Co) of Raw African cotton with a lot of terms and conditions. An amendment followed later by the parties where it stated that "With reference to the above –em6entioned contracts we hereby confirm that, if necessary, we shall carry over the goods for two months and you will pay as the carry over charges for the same."
The sellers out of all their contentions contended that the contract is void ab initio for vagueness and uncertainty of the amendment. The amendment was pertaining to the clause 6 of the agreement which was made in case the buyers were not able to supply goods. While the sellers had absolute discretion in case of any reason whatsoever in case the buyers did not perform their part, they surrendered some part of their discretion to move the delivery April and May.
While delivering the judgment, the court stated that the term "If necessary" is not uncertain in nature. The intention of parties was ascertained again while they were forming the contract and court said that "since the parties agreed to the amendment letter" the agreement was not held as uncertain in nature.
End-Notes:
Indian Contract act defines a contract under S 2 (h)[1] – "An agreement enforceable by law is a contract."
The act also defines void contracts under S 2 (g)[2] - "An agreement not enforceable by law is said to be void."
These contracts are not enforceable i.e. they cannot be enforced in a court of law. There are several reasons for a contract to be declared void like absence of consideration (S. 23), lack of communication of acceptance (S. 3) etc.
One of the reasons for a contract to be declared unenforceable or void is due to uncertainty of the terms of the contract. Section 29 of the Indian Contract act, 1872 deals with contracts with uncertainty.
With the advent of contracts, there was also a rise or abridgment in the contractual law and obligations. There were contracts which were perceived to be uncertain in nature. But, definition or scope of uncertain remained uncertain. It has developed over many case laws with the emergence of time. What was sought to be uncertain is not always uncertain on the face of and can be made certain with proper machinery or by deriving the intention of the parties.
This project aims to scrutinize the scope of S. 29 of the Indian Contract act, 1872 with reference to several case laws pertaining to the same. The scope of contracts under section 29 includes a lot of agreements like Agreement to agree/negotiate, Preliminary Negotiations taking place etc. Further, A Special reference has been given to the case of Puspabala Ray v. Life Insurance Corporation of India pertaining to section 29.
Section 29 Of Indian Contract Act, 1872
Section 29 of the Indian Contract act is concerned with the uncertainty of contracts. It reads as follows:
"Agreements void for uncertainty.—Agreements, the meaning of which is not certain, or capable of being made certain, are void."
As this definition states that any uncertain contracts are declared void under the eyes of the law.
The importance of a contract to be certain in nature was reiterated in the case of Scammell v. Ousten.[3] The facts of the case revolved around a contention whether the parties agreed to the "Hire- purchase agreement" or not while forming the contract. The contract was limited to the point that Ousten would pay Scammel the stipulated price of the motor van based on the hire-purchase agreement.
There wasn't any point in the agreement which indicated the meeting of minds of the two parties or for the court to derive the same. The case went to the trial judge where Ousten was awarded and the contract was upheld. Scammel appealed it in the House of Lords where it was overturned in his favour and the court found that "clause regarding the hire-purchase terms was so vague that there could not be a precise meaning derived from."
Lord Wright, while writing in his judgment, stated that "It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, and that promises and performances to be rendered by each party are reasonably certain."[4]
The derivation of the intention of the parties is attributed to the enforceability of the contract. If the intention is not ascertained then the contract is deemed to be unenforceable in the eyes of law.[5]
The basic reason behind the same can be that if a contract has to be enforceable to be legal, it has to be formed in a way which could be understood by the court. Otherwise the scope of court providing justice will become diminished. Therefore, for court's scrutiny, the contract also has to be precise to its meaning and should echo the intention of the parties making it easier for the court to understand the frame of minds of the parties and grant an appropriate order.
Thus, a certain agreement is an important aspect of a contract to be formed. The court should have a reasonable belief that the parties had consensus ad idem and an intention to contract to start the proceedings and do justice to the parties.
Case Laws Pertaining To Section 29
Section 29 elucidates the importance of a contract to be certain in nature. An essential requirement is also that the terms should be explicit on the face of it (Although the implied intention/ terms is another case).
For example: Mr. A offers to buy 10 tons of oil from Mr. B. He is an oil seller with almost 10 kinds of varieties of oil. Here, It cannot be ascertained which kind of oil is needed to Mr. A from Mr. B. So it is clear on the face that the intention of the parties cannot be ascertained leading to uncertainty of the contract.
In Turn, If Mr. A clears that he needs olive oil from Mr. B and then intends to create a contractual obligation, this will lead to a certain contract.
A contract can however be considered as certain when: ⅰ) Intention of the parties can be determined ⅱ) Reasonableness can be used.
In the cases where the clause is not stated explicitly but still can be determined is not ruled as uncertain. If the intention of the parties can be determined, the contract is held to be certain.
For example, an agreement for sale of land with the name of the land, but without its survey number or area, was not void for uncertainty.[6] In this case, although there was no explicit mention of the land including survey no. , It could be determined that the land what the parties were talking was the same what parties thought and there was "Meeting of Minds".
The determination should be so much so as to make the contract enforceable under the law. Where a portion out of a larger extent of land was agreed to be sold but without specification of the area or boundaries; the terms regarding description being uncertain and vague, the court was not issue a decree which would not be capable of enforcement.
Here, the court cannot arrive at a decision regarding which land is talked or which was agreed by the parties therefore it was held as uncertain.[7]
In the case of contracts which seem uncertain but where the reasonableness can be applied, the contract may not be held liable as uncertain. In other terms, if nothing is specified under the terms of the contract & law can take over to fill the gap, then the contract is not be held as uncertain. For example, where the price is left to be fixed by a third party, there is no uncertainty in the contract as section 9(2)[8] of sale of goods act, 1930 will apply and the reasonable price shall be payable.[9]
Section 9(2) of the sale of goods act deals about the ascertainment of price:
"Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case."
The provision clearly speaks that the contract reasonable price is to be paid and the same depends on the facts of the case.
However, the main function of the court in these cases in not to determine the intention of the parties but what the parties intended during the course of making the agreement. The court should refrain from interpreting or deriving the agreement in their own terms and no external evidence should be put to ascertain the intentions.
Agreements capable of being certain:
"Partially certain" Contracts
Contracts need not always be explicit in nature. Contracts may also be elastic in nature i.e. they may be capable of being certain. The contracts which are capable of being made certain are not void under this section.[10] The legal maxim "Id certum est quod certum reddi potest" states that "something is certain which can be made certain".
The making certainty has to be done by the court who has to derive the intention of the parties while forming the contract. The court also in this case cannot supply any extrinsic evidence to the contract and determine the intention of the parties according to the language of the document.[11] Even oral agreements will not be held uncertain or vague if its terms are ascertainable with precision.
For example: In a case where parcel delivery was scheduled for four o'clock where it is not specified whether the time is 4 a.m. or 4 p.m. The agreement can still be respected because this is a minor ambiguity that can be rectified. Also, the reasonability would apply as the delivery of a parcel is generally not at 4am and it may also create private nuisance to the person.
Also, some terms maybe implied in a contract which does not make it void. The implying terms make the contract valid. If the nature of the terms can be ascertained by implication, then it will be held valid.[12]
For example: Mr. A used the rickshaw to go to point X. There was no written agreement and Mr. A sat in Rickshaw. As a result, he is obligated to pay for the ticket and it is implied that the contract is formed in this case when both of them did not counter the terms of the contract.
However, even in this case, the court has to be conscious while making the contract and should not make a contract for the parties. Anything vague should not be flashed out by imaginative accretions or flights of fancy.[13]
Types of Contracts under Section 29
- An Agreement to agree/ negotiate.
"Agreements to Agree" is a concept wherein any party say a Company will come to an agreement on the basis of an understanding (whether explicit or implied) that a further arrangement will be reached at some scheduled time, when the commercial grounds for and proposed terms of that further agreement may have become more manifest. These agreements are generally used in case of commercial contracts.[14]
So, Instead of negotiating now, they will negotiate the terms in the future, when they feel it safe to contract and is under the ambit of understanding of both the parties. The object of this contract to bind them to perform in the future depending on the circumstances.
The law in the case of agreements to agree is settled that an agreement to enter into a contract is not a valid contract. The critical terms of the contract cannot be left for the future.[15]
- Clarity in the terms: There should be clarity while forming the terms of the contract.
- Intention of parties: If the intention of the parties is made unclear by the lack of an arbitration clause, for example, the insertion of which would indicate an intention to agree, then the contract may be legally enforceable.
- Words used: If the word "shall" is not present, then the agreement is said to be less intended and more likely an agreement to agree.
Contracts containing the clause "If necessary"….?
Section 29 states uncertain nature of contracts and the validity of the same. Contracts which contain the clause "If necessary" in the terms was settled in one of the cases - Dhanrajamal Gobindram v. Shamji Kalidas & Co.[17]
The facts of the case includes an agreement between the buyer (Dhanrajamal Gobindram) and sellers (Shamji Kalidas & Co) of Raw African cotton with a lot of terms and conditions. An amendment followed later by the parties where it stated that "With reference to the above –em6entioned contracts we hereby confirm that, if necessary, we shall carry over the goods for two months and you will pay as the carry over charges for the same."
The sellers out of all their contentions contended that the contract is void ab initio for vagueness and uncertainty of the amendment. The amendment was pertaining to the clause 6 of the agreement which was made in case the buyers were not able to supply goods. While the sellers had absolute discretion in case of any reason whatsoever in case the buyers did not perform their part, they surrendered some part of their discretion to move the delivery April and May.
While delivering the judgment, the court stated that the term "If necessary" is not uncertain in nature. The intention of parties was ascertained again while they were forming the contract and court said that "since the parties agreed to the amendment letter" the agreement was not held as uncertain in nature.
End-Notes:
- Indian Contract act, 1872, § 2(h), Acts of Parliament, 1872 (India).
- Indian Contract act, 1872, § 2(g), Acts of Parliament, 1872 (India).
- G Scammell and Nephew v HC & JG Ouston, [1941] AC 251.
- Id.
- Sachin Shah v. Hemant Shah, (2015) 4 Bom CR 636.
- Mithu Khan v Pipariyawali, AIR 1986 MP 39.
- Pawan Kumar Dutt v Shakuntala Devi, (2010) 15 SCC 601; Nahar Singh v Harnak Singh, (1996) 6 SCC 699.
- Sale of goods act, 1930, § 9(2), Acts of Parliament, 1930 (India).
- Mds. Madhusoodhanan v Kerala Kaumudi P Ltd. AIR 2004 SC 909.
- Bahadur Singh v Fuleshwar Singh, AIR 1969 Pat 114; Bai Mangu v Bai Vijli, AIR 1967 Guj 81 :(1965) 6 GLR 915.
- Keshavlal Lallubhai Patel v Lalbhai Trikumlal Mills Ltd, AIR 1958 SC 512: 1959 SCR 213.
- Gulabchand Gambhirlal v Kudilal Govindram Ratilal Bhagwandas & Co, AIR 1959 MP 151 at 161; on appeal, AIR 1966 SC 1734.
- Bachan Kaur v. Kaka Singh, (2016) 2 ICC 677.
- Parul Madaan, Agreement to Agree or negotiate, so legal, (Mar. 13, 2020), https://www.soolegal.com/roar/agreement-to-agree-or-negotiate.
- Keshavlal Lallubhai Patel v Lalbhai Trikumlal Mills, AIR 1958 SC 512: 1959 SCR 213.
- R&D Construction Group Limited v Hallam Land Management Limited [2009] CSOH 128.
- Dhanrajamal Gobindram v. Shamji Kalidas & Co., 1961 SCC OnLine SC 28.
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