Essentials of a valid contract under the Indian Contract Act, 1872

INTRODUCTION

In simple terms, an agreement implies when two parties put in to composing an agreement which contains certain commitments (guarantees) which are to be performed by such parties, and when such composed understanding gets enforceable by law, it turns into a Contract. Enforceable by law implies when the agreement has obtained the power of law just for the individuals who are involved with it and an infringement of those commitments would pull in lawful activity, including renouncement of the whole agreement. Section 2(h) Indian Contract Act, 1872 defines a contract -“An agreement which is enforced by Law”. An Agreement is a settlement between two parties, which contains commitments or guarantees which the two parties need to satisfy. At the point when such an agreement is made authoritative by Law, it turns into a Contract. Subsequently, an agreement comprises of reciprocal Promises which are to be performed by parties to the agreement. Guarantees are equal when the two parties need to perform something for the other.
Pollock-“Each agreement and promise enforced by law is a contract”.
Salmond-“A contract is an agreement making and characterizing commitment between at least two parties by which rights are obtained by at least one to act or avoid concerning other”.
Anson-“The law of contract is that part of the law which decides the conditions wherein a promise will be lawfully in authority on the individual creation of it’.
Agreements in India are essentially represented by the Indian Contract Act, 1872 (“Contract Act”). It contains fundamental components of an agreement and a few general principles which apply to contracts. It does not force any sure obligation on the parties rather; it states different customs concerning contracts.

Essentials of a valid contract

Section 10 states a few conditions which are required for a contract to be valid.

Offer and acceptance– Offer and Acceptance structure the premise of an agreement. There can be no agreement except if there is an offer and such an offer must be acknowledged. An Offer once acknowledged turns into a Promise. As indicated by Section-2 (a) of the Contract act, an offer/proposition is: When one individual implies to another his readiness to do or to avoid busy, with the end goal of acquiring the consent of that other to such act or forbearance, he is said to make a proposition. It must be noticed that if an offer is not made, to get the acknowledgment of the other party, at that point it can’t be understood as a proposal under the Contract Act. An offer must be made with the object of getting a positive reaction from the expected acceptor. Hence, there might be ‘positive’ or ‘negative’ acts which the proposer might be eager to do. Acceptance implies when the individual to whom the offer was made, has given his consent to such offer–Section- 2(b) of Contract Act. When the offer is acknowledged and such acknowledgment has been conveyed, to the offeror, the parties are limited by their separate promises. Much the same as an offer, even an acceptance can be denied before the correspondence of acceptance arrives at the offeror. The most significant part of acceptance is that presentation of an offer, ignorance of the said offer isn’t acceptance. Subsequently, a demonstration is done, adding up to acceptance, yet acceptor being uninformed of the offer, it is anything but a legitimate acceptance. On account of Lalman Shukla v Gauri Dutt (1913), the defendant’s boy disappeared, appropriately, his worker Plaintiff was sent to look for the kid, meanwhile, a missing banner was delivered by the respondent, promising to pay a specific total, to the individual who finds the kid. The worker, ignorant of such an offer prevailing to discover the kid. When he found that such an offer existed he requested the thought, however, the equivalent was denied. The court decided for the Defendant, by holding that Plaintiff was uninformed of the offer, and in this performance of the promise does not amount to acceptance.

Parties must be competent to contract As per, Section 10 of the contract act, an agreement is a contract if it is made among different basics, by the free consent of parties who are capable to contract. Individuals who are of the age of majority (for example over 18 years old) and are of the rational psyche, and are not precluded to shrink by any law to which such individual is exposed to, can contract. Thus, a minor or a person with an unsound mind is not competent to contract or if such person has been barred banished from withdrawal by laws to which he is oppressed. In such a case the agreement is void.
Minor– An agreement, gone into with or by a minor is void-ab-initio for example no commitment will emerge since its inception. An agreement during the minority age of a party can’t be accordingly approved after achieving the age of majority, this is because each agreement needs separate thought. Nonetheless, if an agreement is made to assist a minor, at that point it is a valid contract. Further, a minor can argue his minority as a protection in a suit, in this way the rule of promissory estoppel is not appropriate.

The doctrine of Estoppel– Estoppel is standard in law, which keeps an individual from taking an alternate position, from what he had when he had gone into an agreement. In this manner, Promissory estoppel implies when a party A made a guarantee to B that he will buy tomatoes developed on his ranch and B likewise develops tomatoes on the conviction that A will buy them. Presently promissory estoppel keeps A from rejecting that he didn’t guarantee any such thing, or at the end of the day it keeps him from backpedaling on his guarantee and not buying the tomatoes. In reality, it applies to situations where the promisor endeavors to dodge any guarantee made by him. For example in the above model, if A a while later came to B and said that he would not have the option to buy tomatoes since he showed signs of improvement bargain, at that point the doctrine of promissory estoppel will prevent him from taking this position since B has followed up on A guarantee. Components of promissory estoppel, in Indian statute, can be perceived from Supreme Court’s decision in MP Sugar Mills Co. Ltd. V. Territory of Uttar Pradesh. It said that where one party (promisor) in clear and unequivocal words or direct, guaranteed something which is either planned to make legitimate relations or may make lawful relations in the future and on that guarantee the other party has followed up on then the guarantee would be official on the party making it and he would not be qualified for return upon it. Also, he would be so independent whether there is any prior connection between the parties or not. So in the event of a minor, he can’t be compelled to satisfy the guarantee, which he made when he was in minority and estoppel which normally keeps a promisor from backpedaling on a guarantee won’t make a difference. This is because a minor being clumsy to contract is unequipped for causing any obligation. Unsound Mind- According to section12 an individual is supposed to be of sound psyche if at the hour of the creation of the agreement he is fit for getting it (understanding its terms) and is fit for shaping a normal assessment about the impacts thereof upon his interests(i.e. fit for understanding its results). An individual need not be an insane person; he ought to be essentially unequipped for understanding the outcomes of the agreement. Along these lines, an individual who doesn’t comprehend a specific exchange or business, and regardless of that goes into an agreement identifying with the business, in such cases the court will hold the individual to be of unsound mind. Excluded to contract implies an individual not allowed to go into an agreement. Eg. – Alien enemy, convicts of a crime, an insolvent person.

The intention of creating a legal relationship
There must be a reasonable goal among the parties that the understanding ought to be connected by lawful results and make a lawful commitment. What this implies are those game plans which are not enforceable by law, for example, social or homegrown arrangements between life partners or companions, which can’t be authorized in a courtroom would not comprise a contract. Legitimate relationship will be inferred when the disappointment of a said demonstration referenced in the agreement would bring about lawful results. Aim to make a legitimate relationship is one of the most basic parts of the law. It is characterized as the expectation to enter a lawfully authoritative arrangement or agreement; it infers that the parties recognize and acknowledge legitimate result if there should arise an occurrence of a break of an agreement. An expectation to make legitimate relations comprise of availability of a party gathering to acknowledge the lawful outcomes of having gone into an understanding.” Contracts must not be the games of an inactive hour, simple issues of merriment and badinage, never planned by the parties to have any genuine impact at all”. Further, Mulla composes It is basic to the formation of an agreement that the two parties ought to consent to something remarkably. Along these lines, if two people go into a clear agreement concerning a specific individual or a boat, and notably, every one of them, deceived by the closeness of name, had an alternate individual or boat in his psyche, no agreement would exist between them.

Lawful Consideration
A Contract is formed when an individual, A, proposes to someone else, B. At the point when such an Offer is acknowledged by the other individual, it turns into an agreement. Consideration implies esteem given for the exhibition of a guarantee. It need not be cash, in any case, it ought to be something which hosts been concurred by the parties and has some worth. Generally, an agreement without consideration is void, nonetheless, exemptions to this standard are determined in Section 25 of the Contract Act. Consideration need not be satisfactory, be that as it may, it must have some worth. Consideration for a guarantee incorporates either execution of a demonstration or non-execution (restraint) of a specific act. The performance of an act additionally incorporates the demonstration of paying cash. In Currie v. Misa, Justice Lush characterized thought, “An important Consideration in the feeling of law may comprise either in certain Rights, Interest, Profit or Benefit collecting to one party or some self-control burden, misfortune or obligation given, endured or embraced by the other”. Thought implies ‘ something consequently ‘ which implies that the parties need to accumulate in some structure, regardless of whether it benefits, rights, intrigue, and so on or consent to have some type of beneficial “consideration.” Under Section 23 certain considerations would be unlawful as:

  • They are illegal by law.
  • It is of such a nature that, whenever allowed, it would crush the arrangements of any law, or is fake.
  • It includes or infers injury to the individual or property of another.
  • The Court sees it as improper or contradicted to the public approach.
  • If even one of these conditions is satisfied, it will additionally deliver the arrangement unlawfully.

Privity of consideration
In India, consideration for a promise may spill out of the guarantee or any third individual, who isn’t involved with the agreement, as long for what it’s worth at the craving of the promisor. According to Section 2(d),” when at the desire of the promisor, the promisee or some other individual accomplishes something or avoids accomplishing something ” Thus Indian law doesn’t perceive privity of consideration, not at all like under English Law, in Twiddle v Atkinson it was held that consideration must spill out of the promisee, regardless of whether it was to support the Plaintiff. English Law perceives privity of consideration.

Free consent
As indicated by section 10 of the contract act, an agreement is legitimate on the off chance that it was gone into by free consent of the parties. Section 14 of the contract, act characterized free consent as consent not given under coercion, undue influence, fraud, misrepresentation, and mistake. The overall averment that consent was not free is not viable. It must be demonstrated that consent was vitiated by any of the 5 components referenced in section 14. If consent shows any of such components, then the agreement is voidable at the choice of the party whose consent was acquired.

Coercion (Section 15)

This section characterizes intimidation as submitting any agreement prohibited by The Indian Penal Code 1860 or unlawful keeping of property or taking steps to submit these agreements. Intimidation incorporates all such agreement which is illegal by the Indian Penal Code. It additionally incorporates taking steps to submit any agreement taboo by the code. Further section 15 says that it likewise incorporates unlawfully confining the property of any individual or taking steps to keep such property, which will hurt the other individual. Such an agreement would add up to pressure just when the agreement has been submitted to go into an understanding.

Undue influence

As per Section 16 if consent has been gotten by an individual who is in a predominant position contrasted with the other individual, at that point, it is excessive impact. In this way, one individual must have the option to rule the desire of the other individual for exercise of excessive impact. Eg a business worker relationship, Doctor-patient relationship.

Fraud
It means an act done to deceive the other person whether to get any advantage from the other person or because of enmity towards the other party. As per Section 17, Fraud can be submitted either by one contracting party or by a third individual with the conspiracy of any contracting party or by the operator of any contracting party.

Misrepresentation
When false statements are innocently made without the intention to deceive, then it amounts to misrepresentation. In misrepresentation, the person making the statement is innocent and has no intention to deceive the other party.

Mistake
A mistake alludes to an off-base conviction that is guiltless which drives one party to misjudge the other. It normally happens when the parties to the agreement are not aware of the conditions of the agreement and comprehend the terms from an alternate point of view. In this manner there is no consensus ad–idem i.e meeting of psyches between the parties and along these lines don’t comprehend something very similar in a similar sense.

Lawful object
According to Section 10, the consideration and object of the agreement ought to be legitimate and is a basic component of an agreement. In like manner, Section 23 characterizes unlawful consideration. Unlawful consideration is one which is either forbidden by law or on the other hand is of such a nature, that whenever allowed, at that point it would vanquish the arrangements of law; or then again the reason for the agreement is false; or then again includes or suggests giving injury or harm to somebody or somebody’s property; or then again the court thinks about it as shameless or against public strategy. On the off chance that an agreement shows any of these components, at that point, it is unlawful and voids u/s 23. An agreement is taboo by law on the off chance that it is either against any law, both meaningful and procedural. For example A consent to sell alcohol without a permit, regardless of the law order to have a permit. In a specific case, the Plaintiff proprietor of a bar and having the permit to sell alcohol moved the administration of the bar and alcohol deal to the respondent who had no such permit. The court held that moving business and offer of alcohol to an individual without the permit, was denied by law and accordingly can’t be upheld. If an agreement dodges an arrangement of any law or invalidates the point of the law (i.e. it makes the arrangement superfluous), it will be esteemed to vanquish the arrangement of that law. If the consideration or object of the agreement is to submit misrepresentation, the agreement is void. Consequently, if the object of arrangement is to misdirect someone else, the equivalent is void. Regardless of whether an aspect of a solitary thought is unlawful, the agreement is void.

CONCLUSION
These are the most essential and rudimentary standards of an agreement, which are to be satisfied, anyway, there might be different conditions which might be set somewhere near an extraordinary law, or for explicit kinds of agreement.

REFERENCE

  • Mulla, Indian Contract Act, 1872 Pg. no. 26, 253
  • By Subodh Asthana, Doctrine of Promissory Estoppel
  • Available at: https://blog.ipleaders.in/doctrine-promissory-estoppel/ (Last Accessed on June 8, 2019)

AUTHOR

ADITI DHAMDHERE (MODERN LAW COLLEGE,PUNE UNIVERSITY)