Under the Indian Contract Act, 1872 Section 2(h) (a) provides that any
agreement that is enforceable by law is a contract. Agreement in simple terms,
can be defined as a promise. Even though all contracts are agreements but all
agreements are not contracts. A promise must fulfil the required principles
like, competency of both parties, free consent, where the consideration and
objective of agreement should not be expressly declared as void in the eyes law,
all these essentials should be fulfilled for a contract to be valid. Apart from
the above stated essentials, it is important that the people being a part of the
contract should have the intentions, readiness and a positive attitude towards
being a part of that contract.
According to, Balfour v. Balfour
- The court held that, an intention to create a
legal relationship is considered as an essential element of contract, stating
that a matrimonial dispute cannot be treated as a legal matter in the courts.
- Offer/Proposal and Acceptance:
Offering or proposing should be the first step in a contract formation. When
a person expresses his consent and wants for doing something specific or
not, this is known as an Offer, under Section 2 (a) of the Indian Contract
Act 1872. The person who makes a proposal is known as the offeror and the
person to whom that offer is made is called the offeree.
The offer should be made, in such a way, that there is a clear intention to
form a legal relationship with the other. A reply given to an offer, is
known as Acceptance, according to Section 2 (b) of the Indian Contract Act,
1872. By saying yes, ok or I agree to this proposal, constitutes accepting
of that offer. Importantly, the proposal and acceptance must be clear and
certain, without which the contract will be invalid.
According to an English case, Carlill v. Carbolic Smoke Ball Co. -
The offer should be clearly communicated to the other party.
In another case, Lalman Shukla v. Gauri Dutt - The court held that,
offeree should be well aware of the facts of the offer made to him. Where
the court made it clear that, acceptance of the known offer is an important
ingredient for the contract to be valid.
Consideration is an important factor for a contract to be legal defined
under Section 2 (d) of the Indian Contract Act, 1872. A contract without
consideration is invalid, since it cannot be legally enforceable.
Consideration basically means the "compensation" for this offer. In the
absence of compensation, one party receives something from the other, but
that party does not give anything in return.
Therefore, the consideration should always be mutual, in simple words, the
party who receives something must give something to the other party in
return as well. An exemption to this rule is that if a written and
registered agreement is made out of natural love and affection it will not
be illegal, even when it is without a consideration. Consideration does not
have to be rational or adequate, but it should be real, which can be given
the past, present, or future, is certainly not against the public morals.
According to, Durga Prasad v. Baldeo - The court provided the
importance of consideration for a valid contract, in its absence the
contract will not be enforceable by law.
- Capacity to Contract:
A person who has reached the legal age, that is, the age of 18, is legally
competent to be a part of contract. The exception to this rule is that if a
minor enters into a contract and the contract is beneficial to the minor, it
will still be legal. Apart from that, one should also have a sound mind so
that, they can analyze the offer and make the right decision, where they
should not be disqualified by any applicable law.
The following are not competent to be a part of any contract:
According to the case, Mohori Bibee v. Dharmodas Ghose - The Privy Council held
that, any contract entered with a minor is 'Void Ab Intio'. Since, minors are
not competent to be a part of contract so, such contracts having minors being a
part of it will not be valid in the eyes of law.
- A minor
- Persons with unsound mind
- Persons disqualified by any applicable law
Consent is another important criterion for the enforcement of legal
agreements. When two people accept or agree on the same thing in the same
spirit, this is known as consent under Section 13 (a) of Indian Contract Act,
1872. The will of the parties should be free and not should not be acquired by
coercion, undue influence, misrepresentation, fraud or mistake. If the consent
is not free, and is obtained by any of the above stated circumstances or
effects, the contract becomes voidable or optional for person whose consent was
not free to be accept it or not.
- Unlawful Agreements:
If the objective of an agreement is for acquiring
something illegal, then the contract becomes void. The outcome of an agreement
should never be illegal, immoral or opposing to the public policy for it to be
- Wagering Agreements:
According to the Indian Contract Act, agreements made
through betting are not enforceable and are therefore illegal. Wager is a type
of contract wherein, a person promises to pay the other person, on the
occurrence of an indefinite event, and the other person promises to pay on the
non-occurrence of the event. Simply, this contract is based on a mutual promise,
like a bet where a promise depends on the occurrence of an incident.
- Contingent Contract:
Contingent contract, simply known as Conditional
contract, which is conditioned upon something to be done or not done and on the
occurrence or non-occurrence of an event, that provides a security to the
contract. Contingent contracts cannot be enforced until an uncertain future
incident occurs. The contingent contracts become void, if that uncertain future
event does not occur.
In conclusion, it can be understood that, a contract is an agreement as per
Section 2 (h) of the Indian Contract Act, 1872 being enforceable by law. For a
contract to be valid, more than one person should be involved, where one party
makes an offer and the other party accepts it. When the parties enter into the
Contract then, all relevant facts must be disclosed to prevent any kind of
intentional misunderstanding of the terms of the contract.
Therefore, in order for a contract to be valid, an agreement is required, which
must be based on the principle of free consent for the contracting parties,
having a legitimate balance, where the subject matter is legal, and the parties
in the contract are having clear intentions to participate.
Written By: Manav Puri
, BBA. LLB. (Hons.), MIT-WPU, Pune