ESSENTIALS OF A VALID CONTRACT UNDER INDIAN CONTRACT ACT

Written By - Khushi Sheikh

1. INTRODUCTION

The Indian Contract Act, enacted on 1st September 1872, stands as one of the nations oldest mercantile laws. This legislation not only facilitates the structured formation and adherence to contracts but also establishes a comprehensive framework for addressing disputes that may arise from contractual engagements. Comprising 238 sections, the Act holds jurisdiction across the entire country.

Crucially, the Act delineates the guidelines for the valid formation of contracts, playing a pivotal role in any agreement or contractual arrangement. Section 2 (h) of the Contract Act succinctly defines a contract as An agreement enforceable by law. To comprehend this, it is essential to grasp the concept of an agreement, wherein a proposal, upon acceptance, transforms into a promise. Consequently, any promise, accompanied by consideration, constitutes an agreement. Ultimately, an agreement that is legally enforceable manifests as a contract.

2. ESSENTIALS OF A VALID CONTRACT UNDER INDIAN CONTRACT ACT 1872

Essentials of a valid contract are defined under section 10 of Indian Contract Act. It talks about what agreements are contract.

A. Offer / proposal - When one person signifies to another his willingness to or to abstain from doing anything, with a view to obtaining the assent of the other to such act or abstinence , he is said to make a proposal.[1]

• Communication of proposal

In delineating the concept of a proposal, it is crucial to underscore the necessity for the manifestation of willingness through a process of signification, implying a clear indication or declaration. Signifying the proposal involves effective communication to the other party. A notable legal precedent, Lalman Shukla v. Gauri Dutt[2], exemplifies this principle. In this case, a servant, having found the masters lost dog and subsequently learning about the reward offer, was deemed ineligible for the reward. The court ruled that, since the offer was not communicated to the servant, the master was not obligated to fulfill the reward, highlighting the significance of explicit communication in the formation of a contract.

• Implied proposals

Words are not only medium of expression. Conduct may often convey to be a proposal. An implied proposal is also valid as declared in section 9 of I.C.A.

• Proposal can be of general or specific case

A specific proposal entails extending an offer to a particular individual, while a general proposal involves presenting an offer to the broader public. The latter is considered accepted when anyone complies with the proposals conditions.

In the case of Carlill v. Carbolic Smoke Ball Company[3], the defendant disseminated an advertisement in a newspaper, asserting that their smoke ball product could prevent influenza if used as directed. The plaintiff followed the prescribed usage but still contracted influenza. The court determined it to be a general offer to the public, and the plaintiffs adherence to the prescribed conduct constituted acceptance. Consequently, the company was deemed liable for damages.

• Offer/ proposal and Invitation to offer.

An offer is a crucial element of a contract, distinct from an invitation to offer, which is not a contractual essential. An offer is a proposal made by one party to another, while an invitation to offer is an invitation for someone to make an offer.

Illustrating this distinction, the Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd [4]case involved Boots implementing a self-service system for purchasing medicine. When the plaintiff picked up medicine from the shelf to buy, the defendant refused to sell. The court ruled it was merely an invitation to offer by displaying the medicine on the shelf, establishing that no contract existed.

B.Intention to create a legal relationship- For a contract to be valid, an intention to create a legal relationship during the proposal is essential. This intention can be implied from the circumstances. Generally, promises in social agreements carry a legal intention, whereas promises in moral or family arrangements do not. In the case of Balfour v. Balfour[5], the court determined that the husband had no intention to create a legal relationship when promising regular payments to his wife. Consequently, the court concluded that there was no valid contract in this instance.

C.Acceptance- It has effect of converting proposal into promise. When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted. A proposal when accepted becomes a promise. Once acceptance is made each party is legally bounded to follow the contract.

• Acceptance should be communicated

Acceptance must be communicated to the promisor but need not to be always in expressed words. It can be done with conduct. It can also be made through post, telegram, message, email etc. But if the acceptance is not communicated and only accepted in mind then it will not amount to be a valid acceptance.

• Communication by acceptor himself

The principle says that the communication of acceptance should be from a person who has authority to accept.

• Acceptance must be absolute and unqualified[6]

It means it should be unconditional. Acceptance with variation is no acceptance it lead to counter offer. Acceptance should be of whole offer i.e. promisee cannot accept only the favourable conditions. In case of Hyde v. Wrench [7]the court held that there were no absolute and unqualified acceptance of the offer. Instead there was counter offer to the offer. So the defendant is not liable to pay any damages.

• Acceptance must be in a prescribed manner[8]

It must be in some usual and reasonable manner, unless the prescribed manner of acceptance is insisted by the proposor.

D. Consideration - It is a foundation of every contract. Without this a contract is void. Blackstone defines consideration as the recompense given by parties contracting to one another.

Essentials of consideration-

Consideration should be at the desire of the promisor. Prominent case is Doraswamy Iyer v. Arunachala ayyer.[9]

It should be done by promisee or any other person.

It can be a past, present or future consideration.

Consideration need not to be adequate but it must be of some value in the eyes of law.

Consideration must be lawful.

E. Lawful object- The consideration or object of an agreement is lawful, unless-

-it is forbidden by law; or

-is of such nature that, if permitted, it would defeat the provisions of any law; or

-is fraudulent; or

-involves or implies injury to the person or property of another or;

-the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every Agreement of which the object or consideration is unlawful is void.

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F.Capacity to contract- 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.[11]

G.Free consent- Consent is when two or more persons are said to consent when they agree upon the same thing in the same sense. Whereas, free consent is to be free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake. Consent is said to be so caused when it would have been given in the absence of such factors. Without free consent the contract is void.

Coercion when consent is obtained by pressure exerted by following techniques

A. Commiting or threatening to commit any act forbidden by IPC. Or

B. Unlawfully detaining or threatening to detain any property.

Contracts made through coercion are voidable in nature.

Undue influence, sometimes the parties to an agreement are so related to each other that one of them is able to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Contract made through Undue influence are voidable in nature. Undue influence can be done by- Real or apparent authority, eg. police over accused. Fiduciary relationship out of trust , eg. teacher over student

Fraud means to obtain consent with the intention of deceiving the other party. Also mere silence is not fraud unless

His silence is equivalent to speech or

It is his duty to speak the true fact

Misrepresentation, act of making an innocently false statement in an effort to get another partys consent. Major difference between fraud and misrepresentation is of intention. In misrepresentation the proposor does not have any intention to deceive.

Mistake- when both the parties are under mistake as to matter of fact such contract is void. When one party is under mistake as to matter of fact then such contract is not voidable. Although mistake of law is no excuse to make the contract void or voidable.

H.Legal enforceability - It means the contract must not be expressly declared void by the I.C.A.

The contracts that are declared void are

• Agreements Void, if considerations and objects unlawful in part.
• Agreement without consideration, void ( there are some exceptions)
• Agreement in restraint of marriage, void
• Agreement in restraint of trade, void.
• Agreements in restraint of legal proceeding, void
• Agreements void for uncertainty
• Agreements by way of wager , void

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