Written by: Bharati Chitnavis
INTRODUCTION
When there is a conflict between two parties or organizations, the role of contracts comes into play. Contracts provide a clear and specific understanding of responsibilities and requirements, eliminating risk of disputes or misunderstanding occurring later.
What is a contract?
As per Indian Contract Act 1872 , contracts are agreements between two or more parties for a particular purpose made by free consent and enforceable by law and are not hereby expressly declared to be void.
The Indian Contract Act, 1872 defines the term “Contract” under its section 2(h) as “An agreement enforceable by law”. Contract is imposed by law .
The term contract is different from agreement. Now we will see the definition of agreement under this act in section 2(e), the Act defines the term agreement as “every promise and every set of promises, forming the consideration for each other”. It may not be applied by law.
The main conditions that contract has to fulfil before it is enforced by law are –
1 The agreement should be made by free consent.
2 there should be parties competent to contract,
3 for a lawful consideration
4 lawful object
5 it should not be void by Indian contract act . these are conditions to be fulfilled to become contract.
If these elements are absent in any contract, then contract is void and is useless.
As per sec 10 of Indian contract act 1872 provides that “all agreements are contracts if they are made by free consent of parties competent to contract , for a lawful consideration and with lawful object, and are not hereby expressly declared to be void”.
THE ESSENTIAL ELEMENTS OF CONTRACT
The Essential Elements Of Contract are offer, acceptance, consideration, consent ,capacity, legality, meeting of minds. If the contract lacks one of these elements then contract is not enforceable legally.
1) Offer - An offer is an expression of willingness to contract on certain terms in exchange of money made with the intention and will be binding upon acceptance to whom it is addressed. The person who makes offer is called offeror and the person to whom offer is made is called offeree. The offer must be adequate and specific of being accepted. The offer can be revoked, altered, or terminated at any time before it is accepted. The offeree is free to extend a counter-offer.
Here is an example – When person A tells person B two things 1. What A is willing to do i.e. selling his bike and 2. What A expects B to do is give Rs.5 lakhs in return for bike. Hence, it is termed as an offer.
2) Acceptance – Acceptance is another necessary element for a valid contract. Acceptance comes into place after the offer is presented, where the offeree can decide whether to accept the offer or not.
Acceptance can be made either verbally or in writing (including mail or email). An acceptance can be in different forms including:
1. Conditional Acceptance
2. Acceptance by Action
3. Option Agreement
An acceptance can be cancelled at any time before it is communicated and not afterwards. Acceptance must be absolute.
Here is an example to make you understand the term acceptance easily –When A tells B that A is willing to buy the car for the said price Rs.5 lakhs, this statement made by A is called Acceptance.
3) Consideration – An agreement without consideration is void. Consideration must be real. It might be service or a money. E.g. Ram promises to pay Rs.4 lakhs to Riya to buy the car. This value is called consideration. Consideration should have some value in the eye of law. It may consist of some right, interest, profit or benefit to the one party or loss suffered, responsibility given by the other.
4) Consent - When a contract is made ,consent should be there and it should be given by free will without any compulsion i.e. free consent. Free consent means that the party accepting offer and entering into contract with another must have done without any force or pressure from anyone whether physical or mental, agrees with terms of the offer and wishes to establish contractual relationship with the other party.
Definitions - According to Section 10 of the contract act, a contract is valid if it was entered into by free consent of the parties.
Section 14 of the contract act defines free consent as consent not given under coercion, undue influence, fraud, misrepresentation and mistake.
Coercion means committing or threatening to commit any act forbidden by law. Undue influence means when two persons are in a relationship in which one exerts normal influence over the other, and person with superior position might take advantage to obtain consent to an agreement to which the other person doesn’t agree. Fraud implies an act done to deceive or to induce a person in contract . It is a false representation. Misrepresentation means a statement that is incorrect. Mistake means there is no general agreement between both the parties.
5) Capacity – It is another important element of contract. The people should be aware of terms and conditions of contract they are entering in before they sign the contract. Capacity of person means those who are parties competent to enter into a contract . Any person who wants to enter in contract should not be a minor.
- Should not have a brain disorder (e.g., dementia)
- Should not be alcoholic or addicted to drugs.
- Any person entering into contract must understand the language used in contract.
A minor cannot enter into a contract unless represented by legal representative.
6) Legality - It plays vital role in contract. A contract for an illegal activity cannot be applied by law . All contracts are subject to the laws and their jurisdiction. A contract with criminal activity is invalid. The law must follow the jurisdiction.
If the contract is signed due to Undue Influence, Mistake, threats, false statements, then it is not legally valid.
If a contract does not follow a public policy or has a bad effect over public welfare then it is invalid.
7) Meeting of minds - This phrase means that parties entering into contract are intended and willing to enter into a valid contract. The parties wish to enter into a lawful agreement by their own will . The parties are ready to accept the consequence arising from breach of a contract. It means they are ready to enter into contract. Even Mulla agrees to the principle of “consensus ad idem” which means for a contract people should agree to same thing .The persons entering into contract should not get confused by different objects but having same name for e.g. car named fury and horse called fury . in such case contract is void. Hence all these elements are required for a valid contract.
CASE : Balfour v Balfour [1919] 2 KB 571 which is a leading English contract law popular case. It deals with whether a husband’s promise to wife results in contract or not. The case deals with whether it is a valid contract or not.
Situation - A husband promised to pay his wife a £30 per month allowance. The wife sued her husband to enforce the promise.
Rule of Law - Agreements between husband and wife to provide moneys are generally not contracts because generally the “parties do not wish that they should face the legal consequences.”
Facts - The dispute is between a married couple. The Defendant husband and the Plaintiff wife lived in Ceylon. In 1915, the couple returned to England. When it was time to return to Ceylon, the Plaintiff was not well. Before returning, the defendant promised to send the Plaintiff £30 per month.The parties’ relationship was not good and began living apart. The Plaintiff filed a suit to enforce the Defendant’s promise .
Issue - Does the husbands promise to pay money constitute a valid contract which can be sued upon?
Judgement - The court recognized that certain forms of agreements do not reach the status of a contract which includes an agreement between a husband and wife . In such agreements, one party is give a certain sum of money either daily or based on month . This agreement is sometimes termed an allowance. However, these agreements cannot be called as contracts because the “parties did not wish that they should face the legal consequences.” Thus, here, the husband’s promise did not result into a contract. Hence it is not a valid contract.
Discussion - The court makes a decision of not enforcing these types of promises.
CONCLUSION
Contracts are agreements enforceable by law. There are certain elements required for a valid contract e.g. offer, consent, consideration, etc. Contracts are main source of relationship building for an organization. They prevent conflicts by giving best deal to both sides of party. Contracts help the organization to maintain compliance. The organizations gain more income due to contracts. Contracts are vital part of business transactions. Contracts can easily get misunderstood by people or complicated sometimes. Hence we should know all the terms and conditions of contracts. Before you sign the contract read every word written in contract. Contracts are widely used in commercial law.
CITATION :
1. Indian contract act 1872
Last visit: 14/1/21
Last visit: 14/1/21
4. Avtar Singh, contract and specific relief (eastern book company, Lucknow, 11th edition.2013
5. 5 Bare act Indian contract act 1872
6. 6 Indian kanoon https://indiankanoon.org/doc/171398/(Last visit: 15/1/21)
Last visit: 14/1/21
CASES CITED :
Balfour v Balfour [1919] 2 KB 571