ABSTRACT
A contract is an agreement between two or more parties which is defined under Indian Contract Act, 1872. The Indian Contract Act, 1872 was rooted in English law. This act outlines the essential elements of a valid contract, such as proposal, acceptance, free consent, lawful consideration, lawful object and an intention to create legal relations. The act also provides for agreements declared to be void, voidable contract, illegal contract etc.Through case laws like Carlill v Carbolic Smoke Ball Co. and Balfour v Balfour, the law put emphasis on clarity, communication, intention to create legal relationship and enforceability in forming a contract. Additionally, the Act put focus on additional requirements like legal formalities and certainty of terms, which ensure validity of contract. This article examines the essentials of valid contracts along with statutory provisions and landmark judgments, emphasizing the important role of contracts in promoting legal obligation and economic stability.
Keywords: Proposal, Acceptance, communication, legal relationship, legal obligation, enforceability.
INTRODUCTION
In simple terms, a contract means when two parties put into writing an agreement which contains certain obligations (promises) which are to be performed by such parties, and when such written agreement becomes enforceable by law, it becomes a Contract. The law of Contract in India is contained in the Indian Contract Act, 1872 and it is mainly based on English common law consisting of judicial precedents. It provides for the appropriate legal remedies to the aggrieved party in case of breach of the contract.
According to Section 2(h) of The Indian Contract Act, 1872 ‘An agreement enforceable by law is a contract’.
AGREEMENT + ENFORCEABILITY= CONTRACT
Section 2(e) Section 10 Section 2 (h)
According to Section 2(e) of The Indian Contract Act, 1872 ‘Every promise and every set of promises, forming the consideration for each other, is an agreement.’
An agreement becomes a contract when it fulfills all the conditions that are given in Section 10 of Indian Contract, 1872.
PROMISE + CONSIDERATION = AGREEMENT
Section 2(b) Section 2(d) Section 2(e)
According to Section 2(b) of The Indian Contract Act, 1872 ‘When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.’
PROPOSAL + ACCEPTANCE = PROMISE
Section 2(a) Section 2(b) Section 2(b)
Contract is also defined by some thinkers.
Pollock- “Every agreement and promise enforceable by law is a contract”.
Salmond- “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”.
Anson- “The law of contract is that branch of law which determine the circumstances in which a promise shall be legally binding on the person making it”.
Essentials of a valid contract
- Proposal and Acceptance
- Essentials according to Section 10 of the Indian Contract Act, 1872
According to Section 10 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.
Free consent, Contractual capacity, Lawful consideration and Lawful object and Not hereby expressly declared to be void
- Other essentials – Intention to create legal relationship, Legal formalities and Certainty.
ESSENTIALS OF A VALID CONTRACT
1. Proposal
According to Section 2 (a) of ICA of 1872 ‘When a person signifies to another his willingness to do or to abstain from doing anything, with a view of obtaining the assent of that other to such act or abstinence, he is said to make a proposal.’ The person who makes the proposal is called the promisor or “offeror” ,the person to whom it is made is called the proposee or “offeree” and when he accepts it, he is called a “promisee”. In English law the term offer is used for proposal
Proposal has some essentials which have to be present to make it valid. Firstly, Proposal must be signified. It means a proposal must be communicated. The communication of proposal was given in Section.3 of the ICA. This Section says that the communication of proposal is —
deemed to be made by any act or omission of the party proposing…by which he intends to communicate such proposal … or which has the effect of communicating it.
An offer may be made by words of mouth, or by writing or conducting in a manner. An offer may, therefore, be an express offer i.e., which is made by some positive act on the offeror, or it may be implied offer, which is inferred from the conduct of the offeror. (Section 9 of ICA)
Only communication is not enough; the communication of proposals must be complete. According to Section 4 of the ICA ‘the communication of a proposal is complete when it comes to the knowledge of the persons, to whom it is made’. For eg. A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.
In the case of Lalman Shukla v Gauri Dutt Lalman Shukla was the servant of Gauri Dutt. The nephew of Gauri Dutt went missing and Lalman Shukla was sent to search for him with expenses. Gauri Dutt later announced that whoever found his nephew would receive a reward. Lalman Shukla was unaware of this when he located the missing nephew and brought him back. He then came to know of the reward and demanded the same. It was held that Lalman Shukla was not entitled to the reward as there was no contract. This was because there was no knowledge of proposal and an action without knowledge of proposal cannot be held as acceptance.
Secondly, Proposals must be communicated to another – It means it must come to the knowledge of another party. Offer may be communicated to a specific person or public at large. When an offer is made to a specific person then it is called a Specific offer. When an offer is communicated to the public at large then it is called a General offer. General offer is further of two types particular and transactional. The former ends after acceptance by a person and the latter can be accepted by many people.
In Carlill v Carboxyl Smoke Ball Company Case the defendant was making smoke balls to cure influenza. The company advertised and claimed that they would pay $100 to any person who got sick after using the product. The plaintiff took it but got sick and claimed the money advertised. The defendant argued that there was no offer since it was not made to a specific person. Court rejected this argument and held that the offer can be general.
Thirdly, there must be an act or abstinence – It means the proposal must involve an action to do or to not do.
Finally, an offer must be communicated with a view of obtaining assent. Any proposal made without any intention of taking assent of the other party is not a valid offer.
So, an offer is valid only if it fulfills all the four essentials.
2. Acceptance
A proposal, when accepted, results in an agreement. It is only after the acceptance of the proposal that a contract between the two parties can arise. According to Section 2(b) of ICA ‘When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise’
Just like proposal acceptance also has some essential to become valid acceptance, to form promise.
Firstly, it should be communicated by offeree to the offeror. It means the person to whom the proposal is made must signify his assent. According to Section 3 the communication of acceptance is —
deemed to be made by any act or omission of the party… accepting…by which he intends to communicate such … acceptance … or which has the effect of communicating it.
In Case of Felthouse v Bindley Felthouse offered his nephew to buy his horse. Felthouse also mentioned if he does not reply then he considers the horse to be his. It was held that since the nephew had not communicated the acceptance, no contract had arisen in this case. In other case of Carlill v Carboxyl Smoke Ball Company it was held that when the offeror, while making the offer, expressly or impliedly, indicated that there is no need of intimating the acceptance and only performance of the conditions of offer would be enough, acting upon stated condition would result in a contract. Communication of acceptance has to be complete. There are two modes of communication and rules related to completion of acceptance are different for both.
a. Acceptance by post (non instantaneous mode of communication)
In contract law, non-instantaneous modes of communication are those where the time between sending and receiving a message is not immediate. Post is an example of a non-instantaneous mode of communication. According to Section 4 of ICA the communication of an acceptance complete,–
as against the proposer, when it is put in course of transmission to him so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
In J.K.Enterprises v State of MP the petitioner submitted the tender to purchase tendu leaves on 11-1-93. The respondent sent communication of acceptance by registered covered date 12-02-93 on the address given by the petitioner. The said letter of acceptance was, however, returned to the respondents. It was held that dispatch of letter of acceptance had amounted to acceptance and completion of the contract.
b. Acceptance by telephone (instantaneous mode of communication)
In contract law, instantaneous communication is a method of communication that allows for the immediate exchange of information or messages between two parties. In these cases the place of contract was those places where words of acceptance are heard. In Bhagwandas v Girdharilal case, the plaintiff made an offer on phone from Ahmedabad for purchase of cotton seed cake from the defendant. The defendant accepted the offer on the phone at Khamgaon. The defendant failed to do the same and was sued by the plaintiff in Ahmedabad Court. The defendant contended that the Ahmedabad Court has no jurisdiction because the contract was completed by the acceptance of offer on telephone, at Khamgaon. It was held that the contract was made where the word of acceptance was heard i.e. Ahmedabad.
Secondly, acceptance must be absolute and unqualified. According to Section 7(1) In order to convert a proposal into a promise the acceptance must be absolute and unqualified. In the case of Hyde v Wrench, an offer to sell a farm for 1000 pounds was initially rejected by the plaintiff, who instead offered 950 pounds for the farm. Later the plaintiff provided an acceptance at the original price. The court ruled that the defendant was not by a contract because the plaintiff’s response amounted to a counter proposal but not an acceptance.
Thirdly, it must be expressed in a usual and reasonable manner. According to Section 7(2) the acceptance must be expressed in the usual reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. In the case of Eliason v Henshaw the offeror wanted the acceptance to be sent by wagon. The offeree dispatched the acceptance by post. It was held that the offeror was entitled to treat the acceptance as invalid.
Finally, it should be made while the offer is still subsisting. In the case of Dickinson v Dodds the defendant offered the plaintiff to buy his house at 800 pounds within a certain period. But before the end of the period the defendant sold his house to another person. The plaintiff then sued the defendant for breach of contract. It was held that there was no breach of contract because no acceptance was made by the plaintiff.
After the acceptance of the proposal it becomes a promise. To become a contract first it has to be enforceable by law. It becomes enforceable when competent parties enter into a contract with free consent.
3. Free Consent – The consent of the parties must be free and voluntary. According to Section 13 of ICA ‘Two or more persons are said to consent when they agree upon the same thing in the same sense’. According to Section 14 ‘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. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake’. Section 19 of ICA states that agreement without consent is void.
4. Contractual Capacity – Section 10 provides that for an agreement to become a contract the parties must be competent to contract further competency is given under Section 11. According to Section 11 ‘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’. For example, A person of minor age cannot enter into a contract.
5. Lawful consideration and Lawful object – Agreement must be supported by consideration to become a contract. According to Section 10 of ICA consideration and object must be lawful. Section 23 provides that which consideration and object are lawful. The considerations and objects are lawful if they are not forbidden by law, not fraudulent, not defeat any provision of law, not cause any injury to any person or property and not regarded by court as immoral or against public policy.
Lawful consideration
According to Section 2(d) ‘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 to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise’. Considerations also have some essentials to make it valid.
Firstly, it should be given at the desire of the promisor. If consideration moves without desire of promisor then it becomes invalid consideration.
Secondly, it must move from Promisee or any other person. It means in India, consideration for a promise may move from a third party. But in England there is privity of consideration i.e. consideration cannot move from third party.
Apart from this in India there is privity of contract i.e. third party cannot enforce it or third party cannot sue for breach of contract. But there are some exceptions where strangers can sue for example in case of trustee and beneficiary, the third party i.e. beneficiary can sue.
Thirdly, it may be the past, present and future. Past consideration means that the consideration for any promise was given earlier and the promise is made thereafter. When one of the parties to the contract has performed his part of the promise, which constitutes the consideration for the promise by the other side, it is known as present or executed consideration. When one person makes a promise in exchange for the promise by the other side, the performance of the obligation by each side to be made subsequent to the making of contract, the consideration is known as executor or future consideration.
Finally, there must be an act, abstinence or promise by the promisee. It means that if nothing has been done in exchange for the promise, i.e., when there is no act, abstinence or promise, there is no consideration.
Section 25 says that an agreement without consideration is void unless it is made on account of natural love and affection between parties or it is a compensation for past voluntary services or it is a promise to pay a time barred debt.
Lawful Object
A contract must be made with a lawful object, which means it must not be forbidden by law; or defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another is immoral or opposed to public policy. A contract made with an unlawful object is void. Forbidden by law means an agreement made for the purpose which is forbidden by law. For eg. Selling tobacco without a license is unlawful.
Apart from all these it is also necessary that agreement is not declared to be void.
6. Not hereby expressly declared to be void
According to Section 2 (g), all those agreements which are not enforceable by law are void. Certain agreements are expressly declared void by the Contract Act such as:
Agreements by way of the wager (Section 30), Agreements to do impossible acts (Section 560), Uncertain and ambiguous agreements (Section 29), Agreements without consideration (Section 25), Agreement having unlawful consideration or object (Section 23 and Section 24), Agreements in which the consent is based on a mistake (Section 20), and Agreements in restraint of marriage (Section 26), trade (section 27), and Legal proceedings (section 28)
If there is proposal, acceptance and all other essentials given under Section 10 of the Indian Contract Act, 1872, then also it is not enforceable if there is no intention to create a legal relationship.
7. Intention to create legal relationship – In order to make an offer a valid contract, it is necessary that the offer should be made with an intention to create legal relationship. Promises in case of social engagement are generally without intention to create legal relationships, therefore cannot be considered to be contracts. In the case of Balfour v. Balfour, A husband agreed to pay his wife a certain amount as maintenance every month while he was abroad. Husband failed to pay the promised amount. The wife sued him for the recovery of the amount. As it was a social agreement she cannot recover the amount as the parties did not intend to create any legal obligations.
Apart from these essentials the terms of the contract must be certain and it must comply with specific legal formalities.
8. Legal formalities – Para 2 of Section 10 of ICA states that certain contracts may require compliance with specific legal formalities, such as writing, registration, or attestation, as prescribed by law. Failure to fulfill these formalities may affect the validity or enforceability of the contract.
9. Certainty – The terms of the contract must be certain and capable of being understood by the parties. Vague or uncertain terms may render the contract unenforceable.
Suggestions
There are many suggestions that are given by the court. Firstly, recognition of digital transactions i.e., giving the same importance to e-contract like the traditional contract. Secondly, to ensure more transparency and fairness in contract between consumers and the shopkeepers. Thirdly, it also suggests putting more focus on free consent of both the parties.
Conclusion
So a contract is a backbone of legal and commercial relationships as it creates legal obligations on both the parties. The Indian Contract Act, 1872 laid down the framework that contracts are valid i.e., in accordance with the law. The Indian Contract Act protects the rights and interests of both the parties ensuring fairness by including important principles like offer, acceptance, free consent etc. The case laws help in understanding principles and its application. Thus the contracts not only establish justice and trust between parties but also contribute in maintaining order in society and the economy.
By Prerana Prajapati (S.S.Khanna Girls’ Degree College)