Essentials of the valid contract
Sakshi Sharma, 10 October, 2020
Every country got the laws which govern the contracts executed in their jurisdiction. Therefore, in India, we have Indian Contract Act, 1872 to govern the contracts executed in India so that in the event of dispute, their legality or validity can be established and judiciary will have uniform approach to see or judge the cases even the Indian Contract Act, 1872 aims at regulating the contracts registered under this act. It has all the provisions which regulate all the contracts, reliefs in case the contract is rescinded and define the legality of the contract as well.
This Act came into effect at the time when India was ruled by British means pre independence era. The objective of the Contract Act is to ensure that the rights and obligations arising out of a contract are honored and that legal remedies are made available to an aggrieved party against the party failing to honor his part of agreement. The Indian Contract Act makes it obligatory that this is done and compels the defaulters to honor their commitments. It extends to the whole of India except the State of Jammu and Kashmir• It came into force on the first day of September, 1872. The sale of Goods was repealed from this Indian Contract Act in 1930. Contracts relating to partnership were repealed in 1932.
Valid and invalid contracts
According to the Merriam Webster’s dictionary, “a Contract is a binding agreement between two or more persons or parties; especially: one legally enforceable.”
Section 2(h) of the Indian Contract Act, 1872 gives a broader definition. It defines, “an agreement enforceable by law is a contract.”An agreement comprises of complementary promises between the two gatherings
To be enforceable by law, an agreement must have the fundamental components of a legitimate contract as contained in Section 10.
Section 10 of the Act, 1872 says “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
The fundamentals required for a valid contract, in this manner, are as under;
1. ‘An agreement’ between the two parties. As we know, Section 2(e) of the Act, 1872 defines agreement.
2. Agreement ought to be between the ‘parties who are competent to contract’. Section 11 says the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject.
3. ‘There should be a lawful consideration and lawful object’. As the Section 23 of the Act says, the consideration or object is lawful when it is not illegal, or fraudulent, or involves injury to the person or property, or immoral, or opposed to public policy.
4. There ought to be ‘free consent’. As Section 14 says, Consent is said to be free when it is not caused by coercion, or undue influence, or fraud, or misrepresentation, or mistake.
An invalid Contract may be of two sub-types, one being void and the other voidable. The understanding must not be one, which has been explicitly pronounced to be void. Sections 24-30 give certain types of agreements which have been expressly declared to be void.
- According to S. 2 (a), 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. The expression ‘offer’ is synonymous with ‘proposal’.
- Expressed and Implied Offer
- By words (written or oral): A written offer can be made by letters, telegrams, telex messages, advertisements, etc; whereas, an oral offer can be made either in person or over the telephone, etc.
- By conduct: An offer may be made by positive acts or signs so that the person acting or making such signs means to say or convey, or such acts or signs have the effect of communicating/ conveying his offer.
Section 2(b), when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. So, acceptance is the act of giving consent to the proposal. An offer (proposal), when accepted, becomes a promise. Acceptance must, as a general rule, be communicated. Acceptance should be made (communicated) by doing some overt act, either by words or conduct. This is a matter of common sense, yet communication is not absolutely indispensable. It is not necessary in the case of unilateral promises. No contract is concluded if the offeree remains silent and does nothing to demonstrate that he has accepted the offer. Mental acceptance or without communication assent does not give rise to any contract. The Indian law requires the offeree to know of the offer in order to validly accept it. Acceptance should be ‘absolute and unqualified’ in all the terms of the offer. If there is any discrepancy between the terms of the offer and the terms of the acceptance, there will be no contract.
Competent/Capacity to Contract
S.10 of the Indian Contract Act – For a contract to be a valid contract, the parties to the contract must be competent to contract.
S. 11 provides that ‘every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject’. Accordingly, it is clear that incapacity to contract may arise from: (i) minority, (ii) mental incompetence, and (iii) status.
The following 3 categories of persons are not competent to contract:
1. A person who has not attained majority – a minor
2. A person who is of unsound mind
3. A person who has been disqualified from contracting by some law.
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Consideration and object
According to Section 2(d), Consideration is defined 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 abstain from doing something, such act or abstinence or promise is called consideration for the promise”. Consideration in contract refers to ‘something in return’. A promise made without consideration is merely gratuitous and, however sacred and binding in honour it may be, it cannot create a legal obligation. An analysis of any contract shows that it consists of two parts: (i) promise and (ii) consideration for the promise. According to S. 24 of the ICA, if any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object, is unlawful, the agreement is void. One of the requirements for the formation of a valid contract is that parties must contract for a lawful object. Section 23 renders certain considerations and objects as unlawful.
Although there are some exceptions
- Natural love and affection
- Past voluntary services
- Promise to pay a Time-Barred Debt
- Creation of an Agency
Consent and Free Consent and their effect on Validity
S.13 of Indian Contract Act, 1872 defines Consent as “Two or more persons are said to consent when they agree upon the same thing in the same sense.” If there is no consent of the parties in the sense it has been defined in S.13, no agreement will be created and hence no contract.
S.14 of the Indian Contract Act, 1872 defines Free Consent as:
Consent is said to be free when it is not caused by
(1) Coercion, as defined in section 15, or
(2) Undue influence, as defined in section 16, or
(3) Fraud, as defined in section 17, or
(4) Misrepresentation, as defined in section 18, or
(5) Mistake, subject to the provisions of sections 20, 21, and 22.
Contract law is founded on the principle that individuals are the bearers of rights, and they bargain with each other to get into contract to exchange goods and services. If abiding these agreements becomes a matter of individual discretion, the entire social and economic order founded on contracts would fall down. In order to avoid such circumstances contract law came into existence .A contract is a civil obligation. However, all obligations are not contracts. Contract law does not cover a whole range of civil obligations; it confines itself to the enforcement of voluntarily created civil obligations. There are many obligations of civil nature, like those created by the acceptance of a trust or imposed by law, whose violation may be actionable under the law of trusts: or the law of torts, or under a statute; but, they are outside the purview of contract. Similarly, the contract law does not deal with a whole range of agreements. Many agreements remain beyond the scope of contract law, as they do not fulfill the requirements of a contract.
Moreover, there are some agreements which, in the literal sense, appear to satisfy the requirements of a contract (such as, offer, acceptance, etc), but still (they) are not enforced as contracts because they do not catch the spirit of a contract. They are excluded under the legal contrivance that the parties must not have intended legal consequences to follow. Contracts are the most essential part of society. A contract can be oral or written, formal or informal, every trade, relations, etc are built upon contracts. There are social contracts and private contracts that bind people in a society, and the law helps them to carry out the agreements made by them.