This Article is written by Arushi Chopra (pursuing BBA LLB from Symbiosis Law School, Noid)
Table of Contents
Contracts in India is governed by the Indian Contract Act, 1872 (hereinafter referred to as “the Act”). A contract, in general sense is an agreement between two parties that creates certain obligations and rights with respect to both these parties and which is enforceable by law. According to Section 2(h) of the Act, a contract is an agreement enforceable by law. An agreement referred in this clause is defined under Section 2(e) of the Act and involves three basic elements i.e. offer, acceptance and consideration. All these three elements are defined under the definition clause of the Act. The basic premise behind formation of a contract is that one part signifies his willingness to enter into an agreement (proposal) and this is accepted by the other party and there is involvement of some kind of consideration in the form of something done or purporting to be done or abstinence from doing an act.
If the three elements mentioned above are present, there exists a valid agreement. However, an agreement is a wider term than contract and all agreements are not contract. An agreement becomes a contract only when the essentials under Section 10 of the Act gets fulfilled. The essential elements of a contract as provided in Section 10 is given as under
Free consent of both parties
While entering into an agreement, the parties must have free consent and acceptance by either party should not be by result of coercion, fraud or misrepresentation. Also the agreement should be consensus ad idem or made in the same sense.
- Competent to contract
The parties to contract must have the capacity to enter into a contract. Section 11 of the Act provides for the persons who are competent to contract. Taking this provision in the negative sense, a minor, a person of unsound mind and a person disqualified to contract by law are not competent to contract. A person disqualified by law is an alien enemy who cannot enter into a contract. Also, insolvents and convicts are also not competent to contract. Foreign sovereigns, diplomatic staff and representatives of foreign staff can enter into a contract but a suit cannot be filed against them without prior sanction by the central government.
- Lawful consideration and Lawful object
An important element for making an agreement is a consideration. However, for an agreement to be enforceable by law, consideration should not be unlawful, immoral or opposed to public policy. The object for forming the agreement should be lawful. Thus, the agreement cannot be made with an object to do a criminal act. A consideration or an object is unlawful if it is forbidden by law, is likely to cause injury to the person or court regards it immoral and opposed to public policy.
- Not expressly declared as void
The agreement should be of such a nature that it should be capable of being enforced by law. Certain agreements which have expressly been declared void or illegal by law cannot form a contract.
Apart from these essential elements provided in Section 10 of the Act, there are certain other requirements to be followed. For example, for a valid contract, necessary legal formalities need to be followed. As a general parlance, agreements can be made orally or in writing. However, there are certain agreements which are to be compulsorily made in writing and if this isnot followed, the contract would be void.
Also, the intention of parties should be to form a contract. A social agreement or an agreement made out of love and affection is not a contract as was held in the case of Balfour v. Balfour[i]. In commercial agreement, there is a presumption that intention was to form a contract.
Circumstances under which contract is void
If any of the essentials of the contract as given above is not fulfilled, the contract is not a valid contract. The following are some instances where the contract is void
Contract by minor or other incompetent person
A contract by minor is unenforceable and void ab initio. This was held in the famous case ofMahoribibee v. DharmodasGhose[ii]. The effect of a contract with minor would thus be that no specific performance can be enforced in such contracts. Even if the minor has received some benefits under the contract, he will not be asked to return the same.
- Contract entered into due to a mistake of fact
In case of a mistake of fact, it can be said that there was no consensus ad idem amongst the parties and hence the contract would be void according to Section 20 of the Act. It should be noted that the mistake must be essential to the agreement.
- Agreement without consideration
An agreement formed without any consideration would be void and unenforceable according to Section 25 of the act. Consideration is defined in Section 2(d) of the act. According to this definition, something done or abstained from doing or a promise of doing the act or abstaining from doing the act forms a consideration. However, promise to do or abstain from doing something that the party was already bound to do or abstain from doing under law does not form a part of consideration.
- Unlawful object or consideration
An agreement formed with unlawful object or consideration is not valid and cannot be enforced in the court
- Agreement in restraint of marriage, trade or legal proceedings
An agreement where the consideration is to stop any legal proceedings or reduce time for suit to be filed, enter into any trade or restraining marriage is void according to Section 28, 27 and 26 respectively.
- Agreement by way of wager
An agreement by way of wager is void according to Section 30. However, an exception is made for certain horse racing competitions which have been sanctioned by the state governments.
- Uncertain agreement
According to Section 29 of the Act, an agreement whose terms are uncertain will be void. For example, an agreement to sell some fruit would be void as it is uncertain as to what quantity of fruit and what type of fruit is to be sold.
A contract is thus an agreement enforced by law that confers upon the parties certain rights and obligations. An agreement is a wider term than contract and all contracts are agreements. Hence, contracts should meet the essentials of an agreement which is offer, acceptance and consideration. Apart from this, specific essentials which make an agreement into a contract are provided under Section 10 of the Act. In addition to this, the act lays down certain other conditions where the contract formed would be void which can also be impliedly taken as essentials of a contract in the positive sense.
[i] 2 KB 571
[ii] (1903) ILR Cal 539