Essentials of a Valid Contract under Indian Contacts Act, 1872

Varchaswa Dube
Author:

Abstract

The vitals of a contract under Indian Contract Act, 1872, are of much significance due to the high ignorance of population committing errors while making a contract. The foundations of any contract lies on its legal enforcement and therefore it is vital to understand to essentials of contract in general.

The study of essential factors of a contract is not only relevant to those who are indulged in business and contract but also from the point of view of legal advisors of the company or individual making a contract.

The current manuscript in hand aims at providing better understanding of the essentials of a contract under Indian Contract Act, 1972 and furthermore, it aims at giving in depth study of essentials of a contract.

Introduction

Law in India has evolved through various religious phrases and dimensions and the history of legislations in India can be traced back to the Vedas and civil law is believed to have been originated from Indus Valley Civilization. The system of judicial precedents in India can be attributed to East India Company which gave India the legal jurisprudence through the medium of Common law[1].

System of uniform legal precedent was introduced by British by charter of 1726 in order to provide uniform legal mechanism however this led to inconsistent enforcement of English law to Hindu and Mohamed consequently The Indian Contract Act, 1872[2] (Contract Act) was enacted in order to govern significant matters of contract and to establish unvarying laws of contract which are to be implemented when contracts in any form were into contemplation.

The Indian Contract Act, 1872 was drafted by third law commission (“The Golden Age of Codification”) which was headed by Lord Romilly in the year 1866[3], bestowed significant laws relating to contracts in India. The act which we interpret and observe today is different from the act which was originally drafted since the original act only has provisions related to Indemnity, Guarantee, Partnership, Contract, Bailment and Agency.

The draftsmen to the best of their abilities enacted the laws in such a way as to ensure that such provisions do not clash with the personal religious practices of any religion however such efforts were in vain when the Imperial Legislative Council decided to repeal S. 76 to 123 and transfer the said provisions to Sales of Goods Act, 1930[4] and S. 239 to 266 (partnership) were transferred to Indian Partnership Act, 1932[5].

It is the consistent interpretation and comprehension of legislation and judiciary of independent India which bestowed us the contemporary Contract Act which now reserves all the necessary legal provisions which are to be taken into consideration whenever any contract of mercantile or day to day basis or any other type of contract is concerned.

With necessary legal mechanisms, the Contact Act also incorporates significant definitions and interpretations which assist the lawman in gentle understanding of the subject. While the contract act contains all the provisions, it is vital to understand the basics of the subject, i.e. what is a contract and moreover what are the essentials of a contract.

What is a contract?

According to Halsbury, “A Contract is an agreement between two or more persons which is intended to be enforceable at law and is contracted by the acceptance by one party of an offer made to him by the other party to do or abstain from doing some act”.

According to Cornell, a contract is “an agreement between private parties creating mutual obligations enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance, adequate consideration, capacity and legality.”[6]

In layman’s term, a contract is any type of agreement between two or more parties where one party in order to get goods and services pay (usually in monetary terms) to the other party however a lawman understands contract as “an agreement enforceable by law” which is defined in Section 2 (h) of Indian Contract Act, 1872.

"Contract" is a bilateral transaction between two or more than two parties. Every contract has to pass through several stages beginning with the stage of negotiation during which the parties discuss and negotiate proposals and counter-proposal as also the consideration resulting finally in the acceptance of the proposal. The proposal when accepted gives rise to an agreement. It is at this stage that the agreement is reduced into writing and a formal document is executed on which parties affix their signatures or thumb impression so as to be bound by the terms of the agreement set out in that document”[7].

Essentials of a Contract under Indian Contract Act, 1872

According to Sec. 10 of Contract Act, all agreements which are done with free consent by 2 or more parties who are competent to do a contract with each other, for lawful consideration by lawful object and the object of such contract is not expressly declared void, all such elements shall be constituted as fundamentals to a contract.

An agreement becomes a valid contract if it achieves the following vital elements:

1) Offer and Acceptance;

2) Consent of Parties;

3) Competent Parties;

4) Lawful Consideration with Lawful Object;

5) Agreement must not be expressly declared void.

1) Proposal and Acceptance;

Proposal:

The foremost phase of any contract is the offer or proposal where an individual expresses his desire or willingness to do or to forbear or refrain from doing an act, with a perspective to incur the approval of other person to such act or to withhold is said to make an offer or proposal.

In order to constitute the act of making a proposal or offer, the person who made the proposal shall exhibit his intentions and convey his avidity to do or to hold back from doing an act, or does any act in order to gain the consent of the other person, such person is said to have made a proposal.

Essentials of a valid proposal are:

1. Proposal must be communicated - An offer is accepted when the acceptance is communicated.[8]Proposal must be certain – This provision means that the true essence of any agreement must be clear Ab-initio.

2. Intention to create legal relationship – In order to create lawful contract, both the parties shall enter into legal relationship with lawful consideration and such terms shall be decided mutually either expressly or impliedly.

3. Offer may be general or specific - A contract may not always be made to a certain individual but it is significant that a certain person shall accept such offer. An offer made with a specific individual is specific offer and an offer made to the society at large is a general offer.

Invitation to offer is different from offer since in order to constitute an offer, a person gives his acceptance to an offer however to complete the offer, the person who initially offered anything must acknowledge such acceptance because the person who sends out the invitation is not actually offering anything but inviting the other party to an offer.

The difference of whether a statement is merely an offer or an invitation to offer relies principally on the objective with which such statement is made. A declaration will only constitute as an offer when the individual making such statements have intentions to be lawfully obliged when the person is of the belief that it was made with such purpose but once such offer is completed with all the vitals, it constitutes as contract and the terms and conditions which are fixed under such contract can not be amended at later point of time.

The Supreme Court in Ghaziabad Development Authority vs. Union of India and Ors[9]was of the view that once an offer is agreed upon the contractual terms, such contract stands finalized between the parties and no amendment to the terms of contract can be made later.

Acceptance:

An acceptance once accepted by the person to whom an offer is made, such circumstances results in an agreement and every agreement enforceable by law is a contract. The assent to such offer may either be expressed or implied by the actions or conduct of the person who is accepting such offer however a mere acceptance to an offer neither binds the person who accepted the offer nor the person who made the offer. An proposal and acceptance can also be made through electronic forms and such provisions are reserved in Section 10-A of Information Technology Act, 2000.

Questing elucidations in regard with the proposal is neither an approval nor cross proposal[10]and the test of objective also applies to acceptance, where it is to be determined whether the person who accepted an offer had intentions to fulfill such acceptance.

The acceptance only arises when the person who accepted the offer had knowledge of said offer. In Lalman Shukla v. Gauri Dutt[11] it was held that “since the plaintiff did not have knowledge of the reward which was being offered by defendant, the plaintiff cannot seek its entitlement”.

An acceptance is valid even without any communication if, an individual who made the offer in any form mentioned the requirements of communication of acceptance but mere silence of a person does not bounds him/her to the contract. Silence is not accepted as a mode of acceptance to an offer as there can be multiple reasons why a person is silent or inactive but to accept such offer it is vital that the such person who accepts the offer on their own behalf or on someone else’s behalf, such person must be authorized and competent to accept such offer.

Essentials of a valid acceptance are:

S. 7 of Contract Act, reserves the essentials when a proposal is to be converted into a promise:

1. Acceptance shall be absolute and unqualified- in order to form an acceptance absolute and unqualified, it is vital that the accepted offer shall be accepted as a whole without any conditions and modifications.

2. Acceptance shall be communicated- the most significant aspect is the communication in any form which contains the accepted terms of the offer or the assent of the person who accepted such offer.

3. Acceptance should be expressed and in prescribed form – the acceptance conveyed should be accepted in the same manner which was prescribed by the person who made the offer or else such acceptance stands void.

4. Acceptance should be accepted in reasonable period of time – the acceptance shall be conveyed back to the person who made the offer under a reasonable duration of time.

2) Consent of Parties;

The consent jurisprudence is based on the maxim “Consensus Ad-idem” which means meetings of mind. Such meeting of minds shall be for the same thing in same sense. This theory is also incorporated in S. 10, 13, 14 and 20 of Contract act.

According to S. 14 of Contract Act, consent is believed to be free when it is not gained by:

1. Coercion;

2. Undue Influence;

3. Fraud;

4. Misrepresentation;

5. Mistake;

Consent means the parties to a contract shall fulfill the contract only when they possess actual intentions and consent to such contract shall not be gained by Coercion, undue influence, fraud, misrepresentation and mistake. If any consent arises due to mentioned factors, the contract is voidable at the ends of party whose consent was gained due to any of such factors[12].

Coercion:

Defined in S. 15 of Contract Act, it refers to threat or menace in any form, which is punishable under Indian Penal Code, 1860[13]and such intimidation is executed by unlawfully detaining or by a threat to unlawfully detain a property, with the malice intention of causing or forcefully inducing any person into an agreement.

For e.g. Z threatens to kill Y, if Y does not transfer his property to Z at the price decided by Z himself, in such circumstances, even if Y transfer his property to Z, such agreement will be unlawful and voidable at the ends of Y however if Y is satisfied with the price incurred by him then such agreement shall be enforceable in the eyes of law.

A mere threat will not attract criminal liability of the accused however a threat to file false case in court of law, if property is not transferred certainly amounts to coercion[14]

Undue Influence:

Defined in S. 16 of Contract Act, term undue influence refers to the act when one party to a contract is dominant to the other party and due to the dominance factor the less dominant party makes an agreement.

The dominant party takes advantage of less dominant party and such acts shall stand voidable at the ends of less dominant party[15]. The burden of proof that the agreement was not made due to any influence or dominance lies on the part of dominant party.

For e.g. Z being the owner of a house asks A to sell his wife’s gold ornaments as payment of rent, if he wants to continue living in Z’s house. A delivers such property to Z, the agreement is voidable at the ends of A.

Mere allegations and establishment of facts concerning dominance are not enough to terminate the contract until and unless it is established that the dominating party also used its dominance to induce the less dominant party in an agreement.[16]

Fraud:

Defined in S. 17 of Contract Act, fraud refers to the inducement by a party to a contract with the intention to deceive other party to the contract. The acts which constitute as fraud

1. Suggestion which is not true by a person who has knowledge that such suggestion is not true.

2. Hiding of a fact by a person who has knowledge of such fact or belief of such fact.

3. Promise made without any intention of fulfilling it.

4. Any type of act which is similar to deceiving.

5. Committing any act which is declared fraudulent by law.

A mere fake statement shall not amount to fraud[17]however any act or omission for instance a nod, smile or wink may amount to misrepresentation but it is significant to understand that such actions shall be done with the intention to cheat the other party to a contract by inducing such party to believe false facts as true[18].

There is difference between being silent and to conceal the necessary facts and such terms shall not be perplexed with. A mere silence to a question is not fraud per se unless there is duty of an individual to speak. There is no such duty or responsibility to disclose facts but necessary disclosure of facts which gives the main idea of a property or good is important or else such circumstances amounts to fraud.

For E.g. A, while selling his horse to B, hides the fact that horse gets angry when it sees other horses, B buys the horse and later discovers such facts, now this contract is voidable at the ends of B, if B keeps the horse, such agreement is valid but if not, A is liable to commit fraud.

Misrepresentation:

Defined in S. 18 of Contract Act, misrepresentation refers to the:

1. A statement which is not authorized or genuine by the information it contains, or that which is not true but the person making such statement believes such statement to be true.

2. A breach of duty, in the absence of such intentions to cheat or deceive or induce an person, or by misleading other person or any person claiming such information under him.

3. Innocently causing a party to a contract to commit a mistake as to the subject of such agreement.

Misrepresentation generally refers to a statement, made by a party in a contract or agreement and such statement is said to be false but the person uttering such statements is of the belief that what his statements are true in nature. The intention to cheat by misrepresentation is a significant factor involved in the aspect of misrepresentation.

Without intention to induce, cheat, mislead etc, the essentials of misrepresentation cannot be attracted on the mere grounds that statements attended by a party to an agreement are not true in nature.

The plaintiff sold his old car to the defendant by falsely representing it to be new and in classy condition but actually said car was in poor condition. When the plaintiff drove the car for certain amount of time, he discovered that the car was not in good condition. In this case, the plaintiff was held liable for misrepresentation.[19]

Mistake:

An agreement is void when both the parties to a contract are under a mistake of fact[20]but an agreement is not voidable because only one party to the contract was under the mistake of fact[21]and an agreement is not voidable because it was made by a mistake of any law which is currently enforceable in India[22]. In other words, mistake of fact is an excuse to constitute an agreement into a voidable agreement but mistake of law won’t act the same as mistake of fact. This principle is based on the maxim "Ignorantia facit doth excusat, ignorantia juris non excusat" which means ignorance of fact is an excuse, ignorance of law is not an excuse.

Any agreement or contract arising out of such agreement shall be void if, both the parties to such agreement were under a mistake of fact and there was no “Consensus Ad-idem”. The rationale behind considering such agreement is that true intention of both the parties to the agreement was not satisfied because both the parties were of different view in regard with core facts of the agreement. In mistake of facts by both the parties, the mistake overrides consent and therefore the agreement stands void in the eyes of law.

In order to attract S. 20 of Contract Act, to hold an agreement void, it is vital that, both the parties must be under mistake of fact to the agreement, but if one party to the agreement knows the facts and conceals such facts, provisions of S. 20 will not be attracted.[23]

Mistake of fact by one party on the other hand will not make a contract voidable merely on the grounds that one party to the contract was not in the knowledge of core facts of the agreement[24]. Such type of mistake is unilateral and ineffective to hold the agreement voidable.

Mistake of law will not constitute a contract as voidable on the mere grounds that such contract was made by a mistake of law currently being enforced in territory of India[25]however an agreement where both the parties to the agreement were under mistake of law, such agreement stands void but unilateral mistake of law is not voidable because it was the duty of ignorant person to be aware of existing laws. Ignorance of law is no excuse in a court of law[26]

For e.g. A offers to buy only white horse of B (which actually died 1 week ago) but A is not aware of such facts and writes to B that ‘he is interested in buying his horse’ with the belief that B only has white horses however B was into business of horses and understands such offer for his remaining horses which are black in color and B delivers black horse to A, such agreement is void in nature as both the parties were of different views to a contract.

3) Competent Parties;

A contract can not only be made by a human being but also by each and every individual who has separate legal entity namely, namely, corporate firms, educational institutes, statutory authorities, government of our country, government of foreign state, registered associations and unions etc. however such bodies themselves cannot contract accordingly they are represented either by their board of directors or legal advisors but in order to get such authority of representation, the individual who is hiring or authorizing some other person to contract on his/her/it’s behalf, must be in capacity to contract.

A competent party to a contract refers to those parties to an agreement who are in capacity to make a contract and includes:

1. Person who has attained the age of majority i.e. 18 yrs or more,

2. Person who is of sound mind,

3. And person who is not disqualified from making contracts by any law.

Person who has attained the age of majority:

The rationale behind restricting a minor to make a contract is, that such person has not fully attained maturity and is, in most of the cases gets exposed to the traps of other dominant party thus in order to protect interests of minor, a minor is detained from making a contract. It is the understanding of the law that such person’s mental state of understanding the consequences of anything is still undeveloped or developing.

Age of majority has the same meaning which is reserved in S. 3 of Indian Majority Act, 1875[27], I.e. eighteen years or more for all the persons residing in India. The age of majority shall be 18 years and a person less than that even by a day will be a minor when purpose of contract is into consideration[28]and any agreement with a minor shall be void ab initio[29]but such provisions are discriminative of the part of person who innocently believed a minor to be of majority age and desired to make a contract but the judiciary is silent on such aspect.

In Mohori Bibi case[30], a minor executed a mortgage, and the person who received such mortgage was aware of minority factor. A case was filed by minor’s mother, the defendant claims that he is major but the court ordered that such contract is void due to incompetency of the minor.

Person who is of sound mind:

An individual of unsound mind is absolutely incompetent to an agreement.[31]It was held in the case of Imprerial Loan Co v. Stone[32] that ‘When a person enters into a contract, and later alleges that he was insane at the time of doing of a contract, such contract is legally binding on such individual in the same manner as if he has done the contract in sane condition, unless the contrary is proved by him or that he proves that the person with whom such contract is made with, knew him to be of insane mind’

A person in order to be of sound mind shall understand an agreement and shall be able to form rational judgment while making a contract[33]. Mental capacity plays a significant role while an agreement is being made, and such capacity should be of such a nature that it can judge the consequences and effects of any agreement.

A person who is generally in unsound state of mind but periodically of sane mind may make a contract when he of sane mind but a person who is usually of sound mind but occasionally insane shall not be competent to make a contract. In cases of unsoundness of mind, the burden of proof lies on the part of person who alleged that he was of unsound mind when he made the contract.

Person who is disqualified by law:

A specific class of individual are restricted and barred from making any agreement or contract such type of persons include:

1. Insolvent – A person who has been declared insolvent by any competent court of law shall be termed as insolvent. An insolvent is a person who failed to pay back his debts which he borrowed but such insolvency shall not be applied to contracts where the insolvent person sells his land in order to become solvent again.

2. Alien Enemy- A person who does not belong to India and is not a citizen of India, and the rights of such person to make an agreement are absent. However this does not mean that any person who does not belong to India cannot make a contract, there is a difference between foreign national and alien enemy.

3. Foreign Sovereign – any foreign citizen, who is in India, for the purpose of representing their own nation in India, shall be termed as foreign sovereign and such person is not competent to a contract under Indian courts until and unless such individual gives his consent to make an agreement which is enforceable in Indian courts.

4.  Convicts – the individuals who are sentenced to imprisonment by any competent court shall be barred from making any agreement with any individual.

5. Statutory corporation – corporations includes companies, associations etc. and are not incompetent to an agreement in the same manner as a minor is, and can perform certain acts like acquiring of property, day to day business transactions but such acts cannot be done without the official seal of the corporation and therefore it amounts to certain restrictions

For e.g. A (minor) makes a contract with B to buy his motorcycle, such agreement is void in nature even if A pretends to be of more then eighteen years.

Z, a person suffering from rare mental decease of being insane, and at times he gets couplets of madness once a while, makes a contract with A to buy his property, such contract is void only if Z proves that he was of unsound mind when he made the contract.

4) Lawful Consideration and Lawful Object;

Every object and consideration of an agreement is lawful until and unless:

1. It is forbidden by law;

2. It is of such a nature that, if it is allowed, it shall violate the existing legal provisions, or happens to be fraudulent in nature;

3. It employs any injury to a person or any property;

4. It is considered immoral in nature by courts or it opposes general public policy;

If any consideration or its objectives are of such nature that they violate the existing legal provisions, then such consideration shall be unlawful and will be void in nature. Under circumstances where court is of the opinion that if such consideration or its object is allowed then such consideration will be against the existing laws and will oppose public policy.

This provision imposes a restriction on the rights of freedom of an individual to be a party to a contact and his rights to the superseding public policy[34]. A person may enter into a contract with unlawful consideration and unlawful object in such a way that is infringes legal provisions of any kind, and by doing such acts, the person is only making one thing certain, i.e. he cannot claim any compensation or relief either from other party to the contract or by court of law irrespective of other party being aware of such unlawful acts of the person who employed unlawful consideration by unlawful act.

The term ‘Object’ in this provision is not same as ‘Consideration’, while consideration shall be referred to as ‘purpose’, ‘object’ shall be referred to as ‘motive’.

A, agreed to sell his goods to B, B who is insolvent asks his brother-in-law C for a consideration of certain amount, however the object of both B and C was to commit fraud. It was held that consideration in this case is lawful but the object was unlawful.[35]

Forbidden by law:

Any act or omission which violates the existing legal provisions shall be referred to as forbidden by law, or any competent authority acting under parameters of law. ‘Forbidden by law’ refers to judicial statute law. Any agreement will not cease to be a contract on the mere grounds that it is forbidden by law. An agreement shall only be ceased if it’s consideration and objects are forbidden by law.[36]

Agreements which are forbidden by law shall include:

1. Agreement which is restraint of a marriage of any person, other then a minor is void,[37]

2. Agreement by which an individual is restrained from practicing a lawful profession, any trade or business of any kind, which is legal in nature, shall stand void,[38]

3. Agreement by which an individual is restricted from practicing his legal rights in reference to any contract, or any other legal proceedings, discharges liability of any party after expiry of any contract, in order to restrict any person from practicing his legal rights, such agreements shall stand void.[39]

4. Agreement by way of wager or gamble are void, and no lawsuit shall be filed in court of law for recovery of such amount which was given to a person for the purpose of gambling., and such agreement stands void,[40]

Is of such a nature that, if permitted, it would defeat the existing legal provisions:

The term ‘defeat the provisions of law’ refers to those agreements which tend to, or intent to go against any legal provision or statute, codified or not, shall stand void however it is on the part of court of law to determine the real intention of parties to an agreement and if the court is satisfied that a particular agreement intends to violate any existing law, such agreement shall be declared void and unenforceable by court.

Is fraudulent:

Fraud here is the same as defined in S. 17 of Contract Act, it refers to every consideration and object of any agreement which is made with the intention to commit fraud shall stand void in the eyes of law and is not enforceable.

For e.g. X,Y and Z agrees to split the property which shall be gained by them by fraudulent means, such agreement is void in nature as it employs unlawful acts.

Injury to person or Property:

Any agreement or contract which is made with the intention to harm or injure any person or his property or property which belongs to someone else, such agreements shall stand void but in order to declare such contracts void, the prosecution must establish the unlawful consideration and objectives of party in the court.

For e.g. A and B makes a contract with the intention to cheat C, by taking away the property of C by any means, here contract of A and B is void.

Considered immoral in nature by courts or it opposes general public policy:

The word ‘immoral’ has wide scope in its meaning, but in general, immoral refers to any act which is offensive to the established good ethics or morals.

If courts with their wide conscience are of the opinion that, an agreement or contract, if executed, shall defeat the bestowed provisions of morality or general public policy, then such agreement shall be declared void by the competent courts. It is to be observed that the understanding of terms ‘immoral’ and ‘general public policy’ and not codified and is ever evolving with time and for the purpose of declaring an agreement void, the new facts shall be taken into consideration every time.

For e.g. A makes an agreement with B, to sell his morphed photos of C, such agreement is not only void but also attracts criminal liability.

5) Agreement must not be expressly declared void.

If an agreement is expressly declared void by any statute or act such agreement shall be void and no enforcement of such agreements will be taken into consideration.

Certain agreements bestowed in Contract Act are expressly declared void, such agreement includes:

1. If consideration and objects of a agreement are unlawful in part,[41]

2. Agreement without consideration,[42]

3. Agreement in restraint of marriage,[43]

4. Agreement in restraint of trade,[44]

5. Agreement in restraint of legal proceeding,[45]

6. Agreement void due to uncertainty,[46]

7. Agreement by way of wager is void,[47]

If consideration and objects of a agreement are unlawful in part:

It is presumed that an agreement is usually undividable, and therefore any part of any agreement of consideration, if found to be unlawful or goes against the law enforced, such agreement shall stand void. The provisions of S. 24 of Contract Act will not apply where neither the consideration is illegal nor is the object.[48]

The widely acknowledged belief is that, when the illegal element cannot be separated from the lawful portion, the contract entirely is void, but where such elimination of unlawful part from lawful part is possible, the unlawful part shall be eliminated and the lawful part must be maintained.[49]

A, B agree to sell the land of C, A’s intention was to commit fraud by running away after taking his share from money, such agreement shall be void.

Agreement without consideration:

Any agreement without consideration shall be void, unless, it is written or registered, it is a promise to compensate, it is a promise to pay a debt banned by limitation law[50], made out of love and affection, is compensation to a person who has done something voluntarily for promisor.

Consideration is an essential in order to make a contract binding on all the parties to such agreement and any agreement without consideration is void and will not be enforced in the eyes of law.[51]

A agrees to sell his land to B, without any lawful consideration or intention to actually sell his land, such agreement is void.

Agreement in restraint of marriage:

Any agreement which restraints a person from marrying other person of choice is void and such agreements cannot be enforced by any court of law. Any prevention which unjustifiably suppresses or hinders the liberty of an individual to marry, who has attained the age of majority and is not of insane mind, or by any other reason, which restricts a person from marrying, shall be void. An agreement restricting right of a girl, who is of competent age, to marry a person of her own choice, shall be void.[52]

B who is father of A (an adult), restraint A from marrying a girl C (an adult), in return B will pay certain amount of money to A, such agreement is void.

Agreement in restraint of trade:

When any person is restrained or denied his right to practice any lawful profession, business or trade of any kind, such restraint is unlawful in nature and violates fundamental rights of a person vested in Article 19(1) (g) of Constitution of India.

An agreement in restraint of trade refers to ‘where a party agrees with other party to suppress its liberty to carry on trade with other persons not parties to the contract in such a manner as he chooses’[53]

For e.g. A agrees with B, to not to carry on business of his choice, such agreement is void in nature and cannot be enforced in court.

Agreement in restraint of legal proceeding:

Agreement in restraint of legal proceeding[54]refers to those agreements which restrict the other party to a contract to enforce their legal rights in consideration with a contract, or under any other legal proceedings.

For e.g. A and B agrees to an agreement that after signing an particular contract, both of them shall not enforce their legal right in any form, such agreement is void.

Agreement void due to uncertainty:

Any agreement whose meaning is not fixed or vague to the parties of such agreement shall stand void. An agreement is usually fixed by the terms as to what shall be the price, quantity, quality, date of delivery etc. however in cases where there is no certainty related to the terms and conditions of the agreement such agreement will be void in nature.

If the terms of an agreement are vague, or the terms do not specify anything or are so inadequate to reflect the core intention of the parties, such agreements are not enforceable by law however difficulty in understanding and interpretation of a contract shall not be perplexed with vagueness[55].

For e.g. A agrees to sell B many horses, here nothing is specific to show how many horses are to be brought or delivered or the price of horses. Such agreement is void.

Agreement by way of wager is void:

Any agreement whose primary motive is wagering shall stand void in the eyes of law and no enforceability of such agreement shall be allowed. No recovery from agreements where wager was the primary motive shall take place either.

Gambling in any form shall be suppressed by the codified law and therefore no suit shall arise out of any gambling, for either recovery or claim of share from money made by wagering in India.

However it is to be underscored that policy of this act is not to discourage or prevent gambling but it merely declared all the agreements which are concerned with gambling as void.

Exception to this provision is horse racing[56]

For e.g. A gambles with B contending that India will win today’s cricket match against England, now such agreement is void in nature as either party cannot sue other for recovery of prize.

Conclusion

In contemporary world, it is significant to be aware of all the necessary legal provisions specially to whose who are into contracts either on day to day purpose or once in a while, both the types of person shall be aware of all the legal provisions which are necessary to constitute a valid and enforceable contract and in order to draft such valid contract both the parties to a contract shall be aware of all the necessary elements without which a lawful contract cannot be formed.

The significance of acknowledging vitals of a valid contract lies not only on the part of those who are into contracts for any purpose, but also on legal fraternity because, only the judicial mechanism in the country can protect the interests of a person who has abused by the other party to a contract which merely abused the terms of a contract and therefore in order to protect the rights of such person, the essentials of a contract shall be promoted.

[1] Brief history of law in India, Bar Council of India, available at: http://www.barcouncilofindia.org/about/about-the-legal-profession/legal-education-in-the-united-kingdom/

[2] Act 9 of 1872

[3] School of law, University of Kashmir, available at:http://law.uok.edu.in/Files/5ce6c765-c013-446c-b6ac-b9de496f8751/Custom/UNIT%20-%204.pdf

[4] Act 3 of 1930

[5] Act 9 of 1932

[6] Cornell Law Institute, Legal Information Institute, available at: https://www.law.cornell.edu/wex/contract

[7] AIR 1998 SC 1400: (1998) 3 SCC 471

[8] Felthouse v. Bindley, (1863) 7 LT 835

[9] AIR 2000 SC 2003: ( 2000 ) 6 SCC 113

[10] U.P. State electricity board v. Goel Electric Stores, AIR 1977 All 494

[11] (1913) 11 All LJ 489

[12] Section 19 of Indian Contract Act, 1872

[13] Act 45 of 1860

[14] Chuni Lal v. Maula Baksh, AIR 1936 Lah 6

[15] Section 19A of Contract Act

[16] Sunder Koer v. Rai Sham Krishen, (1907) 34 IA 9

[17] Kamal Kant Paliwal v. Prakash Devi Paliwal, AIR 1976 Raj 79

[18]W alters v. Morgan, (1861) 3 De GF & J 718

[19] Crowther v. Shannon Motor Co. (1975) 1 All ER 139

[20] S. 20 of Indian Contract Act, 1872

[21] S. 22 of Indian Contract Act, 1872

[22] S. 21 of Indian Contract Act, 1872

[23] Ganga Retreat & towers ltd. v. State of Rajasthan, (2003) 12 SCC 91

[24] Section 22 of Indian Contract Act, 1872

[25] Section 21 of Indian Contract Act, 1872

[26] Bam Nirunjun Singh v. Prayag Singh ILR 8 Cal 138 at p. 141

[27] Act 9 of 1875

[28] Bhim Mandal v. Magaram Corain, AIR 1961 Pat 21

[29] Mohori Bibi v. Dharmodas Ghose, (1903) 30 IA 114

[30] Supra note 29

[31] Amina Bibi v. Saiyid Yusuf, AIR 1922 All 449

[32] (1892) 1 QB 599

[33] Section 12 of Indian Contract Act, 1872

[34] Re KL Gauba, AIR 1954 Bom 478

[35] Jaffer Meher Ali v. Budge Budge Jute Mills Co, (1906) 34 Cal 702

[36] Udhoo Dass vs. Prem Prakash and Ors, AIR 1964 All 1

[37] Section 26 of Indian Contract Act, 1872

[38] Section 27 of Indian Contract Act, 1872

[39] Section 28 of Indian Contract Act, 1872

[40] Section 30 of Indian Contract Act, 1872

[41] Section 24 of Indian Contract Act, 1872

[42] Section 25 of Indian Contract Act, 1872

[43] Section 26 of Indian Contract Act, 1872

[44] Section 27 of Indian Contract Act, 1872

[45] Section 28 of Indian Contract Act, 1872

[46] Section 29 of Indian Contract Act, 1872

[47] Section 30 of Indian Contract Act, 1872

[48] N Purkayastha v. Union of India, AIR 1955 Assam 33

[49] VRM Ramaswamy Chettyar v. CTMN Nachiappa Chettyar, AIR 1940 Rang 45

[50] Act No. 36 of 1963

[51] Ran Bahadur Singh v. Hanuwant Singh, AIR 1957 Raj 29

[52] Shahzada v. Mohammed Rasul, AIR 1934 Pesh 22

[53] Petrofina Ltd v. Martin, 1966 CH 146, 1966 1 All ER 126

[54] Subs. By Indian Contract (amendment) Act, 1996

[55] Kandamath Cine Enterprises v. John Phulipose, AIR 1990 Ker 198

[56] See Section 30 of Indian Contract Act, 1872