Contracts and Its Essentials

Introduction

The law of contract in India is governed by the Indian Contract Act, 1872.  According to section 2 (h) of the Indian Contract Act, 1872 contract is an “agreement enforceable by law”[1]. The definition of contract can be divided into two parts i.e. agreement and enforceable by law. Section 2(e) of the Act[2] defines agreement as “every promise and every set of promises forming the consideration for each other”. To make a layman understand an agreement is an accepted proposal.

An agreement is an umbrella term and for both the agreements enforceable and agreements unenforceable by law and the enforceable agreements become contracts. The second part of the definition that is Enforceable by law means that the agreement has the capability of being legally enforced. But for an agreement to be called a contract there are some essential conditions that need to be fulfilled and those conditions are mentioned below.

Offer or Proposal

The first and basic essential element of a contract is an offer. The term offer is used in English law while in Indian law the term proposal is used. The term proposal is defined in section 2(a) of the Contract Act[3] as “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”.

In simple words, the proposal is a declaration of the promisor’s desire to do or abstain from doing something.

When it comes to proposals it is very important to know when the communication of the proposal is complete. According to section 4[4] of the Act “the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made”.

In Lalman Shukla v. Gauri Datt[5]defendant’s nephew ran away from home, and he sent his Lalman who was a servant at his house in search of the boy. After Lalman has left the house, the defendant made an offer that whosoever is successful in finding his nephew will be awarded. The servant was successful in finding the nephew but came to know about the award later. He however thought he was eligible for the award and decided to recover it. But the application was dismissed, and the court held that the contract was not valid because in order for it to become a contract the offer must be communicated to the person and this condition, in this case, was not completed hence, falling the action of Lalman.

Acceptance

A proposal becomes a contract only after it is accepted. Section 2(b) of the Act defines acceptance as “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”[6].

In order for an acceptance to be valid, it should be communicated to the promiser by the promisee and the acceptance must be absolute and unqualified.

Communication of acceptance

  • Acceptance can be communicated expressly or can be implied through one’s action mere mentally thinking that I have accepted the offer is not valid acceptance. 
  • When the offer made is a general offer the acceptance is implied and validated by conduct. In Carlill v. Carbolic Smoke Ball Co.[7], the defendant company claimed in the newspaper that if their product is used in the prescribed manner would prevent cold and influenza. They also offered a reward of 100 euros if someone still catches a cold or influenza and to make their offer more solid they claimed that they have already deposited the 100 euros in the bank. The respondent even after using the product in a prescribed manner caught the flu. The respondent knocked on the doors of court and the defendant claimed that they were not serious about the offer and it was very vague and the advertisement was not an expressed promise but the court help that depositing the amount in the bank shows that the company was very much serious about the offer and found their reward as an expressed promise.
  • The acceptance of the offer should be communicated to the offeror himself. Acceptance told to any other person will not be counted as a valid acceptance. In Felthouse v. Bindley[8], the plaintiff offered to buy his nephew’s horse and wrote if nothing further is communicated, he will consider the horse his. No reply to this was sent. But to the defendant who was his auctioneer, the nephew communicated to not sell the horse as it belongs to his uncle, but the defendant auctioned the horse by mistake and the plaintiff sued. The court held that communication to an unknown person in the case the auctioneer is not valid also a duty of reply cannot be imposed on anybody.
  • The communication of acceptance should always be from the person who has the authority to accept not from someone else. In the case of Powell v. Lee[9], the information of acceptance of the plaintiff as a teacher was communicated to him by an informal source but later the appointment was canceled. The court held that the communication was not valid because the source of it was not authentic.
  • According to section 7[10] of the act, the acceptance should be communicated by the mode preferred or told by the offeror. If not mentioned the acceptance can be communicated in a usual and sane manner.
  • The acceptance is said to complete when it is communicated to the proposer, this is when the parties are in the presence of each other. But in case the parties are living at a distance proposer is bound as soon as the acceptance is put into the course.

Absolute and Unqualified acceptance

According to section 7[11] of the Act “in order to convert a proposal into the promise, the acceptance must be absolute and unqualified. In order to validate an acceptance, all the parties involved in the contract should agree to the same thing, in the same sense and at the same time. If the promisee has accepted the terms but with some variations that is not a valid acceptance but that is just a counteroffer”.

Consideration

Consideration is the very base of every contract. An agreement without consideration is void forget about a contract. Section 2(d)[12] of the Act defines consideration 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 a consideration for the promise”. The main parts of the definition are that the act or abstinence should be done at the desire of the promisor, that it should by promisee or any other person and it is promised to be done.

  • At the desire of the promiser

An act is not considered as a good consideration for the promise if not done at the desire of the promiser.

  • Promisee or any other person

This part of the definition means that it is the consideration that matters not the person from whom it moves.

  • Has done or abstain from doing.

An act already done or abstained from doing in order to keep the promise is an executed consideration.[13]

Exceptions to consideration

  • Natural love and affection

An agreement made based on natural love and affection within close relatives can be enforceable without consideration.

  • Past voluntary service

A promise made to a person who has voluntarily already done something for the promiser is enforceable.

  • Time barred debt

A promise to pay time barred debt is enforceable if the promise is in writing.

Capacity to contract

According to Section 10[14] of the Act for an agreement to become a valid contract the parties involved must be competent to contract. The competency of parties is defined under section 11 of the Act. According to section 11[15], “every person is competent to contract who is of the age of majority according to 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”.

  • Age of majority

Mainly the age of majority is 18 except when a guardian is appointed by the court for the same person then the age of majority is 21. If a minor enters into an agreement the agreement is absolutely void. It was held in Mohori Bibee v. Dhurmodas Ghose[16]the privy council held that the mortgage made by the minor was not valid hence, making the contract void ab intio making it invalid in the eyes of law. Also, it was held that the minor cannot be forced to give the money back because he was not bound to the promise made.

  • Unsound mind/ disqualified by law.

The condition of an agreement made by a person of unsound mind is similar to that of an agreement made by a minor i.e., absolutely void. But if a person is sometimes of unsound mind, then the agreement signed by him during the time of sanity will be valid.

  • Free consent

Another essential condition for a valid contract is free consent (section 10). According to section 14 of the Act[17], “consent is said to be free when not caused by

  • A threatens to shoot B, if B does not agree to sell his property to A at a stated prize. B’s consent is said to be obtained by coercion.
  • A, a man enfeebled by disease or age, is induced, by B’s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employs undue influence.
  • Coercion as defined under section 15
  • Undue influence as defined in section 16
  • Fraud as defined in section 17
  • Misrepresentation defined in section 18
  • Mistakeasdefined in sections 20,21&22”

Illustration

When the consent in any agreement is given by the person under any above-mentioned factors the contract is voidable at the will of the consent of the person whose consent is caused by these factors. But in case of a mistake, the agreement is void.

Conclusion

A contract creates a joint liability on both parties. One party is liable to pay consideration and the other party is liable to perform or abstain from performing a certain activity. In case of not fulfilling the obligation, the parties can only sue if the contract is not valid because an invalid contract is just an agreement and agreements are not enforceable by law. And in order to form a valid contract, the above-mentioned conditions are compulsory to be fulfilled. 

Some of the above-mentioned conditions make the contract void and some make the contracts voidable which means it can be made void on the willingness of the party causing the condition.

But the contract act is not exhaustive which means there are some specific contracts governed by specific laws and in those contracts, conditions can be different.


[1] The Indian Contract Act, 1872, §2 (h), No. 9, Acts of Parliament,1872.

[2] The Indian Contract Act, 1872, §2(e), No.9, Acts of Parliament, 1872.

[3] The Indian Contract Act, 1872, §2(a), No.9, Acts of Parliament, 1872.

[4] The Indian Contract Act, 1872, §4 No.9, Acts of Parliament, 1872.

[5]Lalman Shukla vs. Gauri Dutt, (1913) 11 All LJ 489.

[6] The Indian Contract Act, 1872, §2(b), No.9, Acts of Parliament, 1872.

[7]Carlill v Carbolic Smoke Ball Company EWCA (1893) 1 QB 256 (CA).

[8]Felthouse v Bindley,(1863) & LT 835. .

[9]Powell v. Lee,(1908) 24 TLR 606.

[10] The Indian Contract Act, 1872, §7, No.9, Acts of Parliament, 1872.

[11] Supra 10.

[12] The Indian Contract Act, 1872, §2(d), No.9, Acts of Parliament, 1872.

[13] AVTAR SINGH, CONTRACT & SPECIFIC RELIEF, 103-108 (12 Ed. ,,2017).

[14] The Indian Contract Act, 1872, §10,  No.9, Acts of Parliament, 1872.

[15] The Indian Contract Act, 1872, §11, No.9, Acts of Parliament, 1872.

[16]Mohori Bibee v. Dharmodas Ghose,ILR (1903) 30 Cal 539 (PC).

[17]The Indian Contract Act, 1872, §14, No.9, Acts of Parliament, 1872.


Authored By: Sunidhi Gupta, 5th Year, BBA LLB (H), Amity Law School, Noida

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