This article has been written by Samiran Das from S.K. Acharya Institute of Law, University of Kalyani

Table of Contents

Introduction:

A contract is an agreement between two parties regarding the performance of a particular act in exchange of consideration. The contract is a formal agreement between two competent parties and they are legally bound to follow the terms and conditions or clauses of t6he agreement. A contract is an agreement between two parties who are considered as competent under the law and they give consent to the agreement without any coercion, undue influence, or mistake, etc.

Section 10 of the Indian Contract Act deals with the essential elements of a contract. Therefore for an agreement to be regarded as legally enforceable, must possess certain essential elements.

According to this section all agreements are contracts if they are made by free consent of the parties competent to contract, for a lawful object and are made by free consent of the parties competent to contract, for a lawful object and are not expressly declared to be void.

Essential of a Valid Contract:

Offer and acceptance.
Intention to create legal relationship.
Lawful consideration.
Capacity of the parties.
Free and genuine consent.
Lawful object.

Offer and Acceptance:

The first and the most important essential of a contract is that, there should be an offer by one party and the offer must be communicated to the offeree or the other party to the contract, who has to accept that offer. If the other party accepts the offer then the parties are said to be bound by a contract. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional.

The acceptance must also be according to the mode prescribed and must be communicated to the offeror.

What constitutes an offer? Not every proposal made is an offer. To be called an offer the proposal must :

Show that there is an intention on the part of the offeror to be bound by it.
The offeror must make the offer with the view of obtaining the asset of the offeree to such act or abstinence.
The offer must be definite.
The offer must be communicated to the offeree.

The offer or the proposal must be communicated to the other party through word of mouth or through writing (section 3).

Also, section 4 lays down that the communication is said to be complete when the propo0sal comes to the knowledge of the other party to the contract.

Section 5 of the Act says that any proposal or offer can be revoked before its acceptance, but it cannot be revoked after the offer has been accepted by the other party.

Section 6 talks about the mode of revocation of the proposal. A propo0sal or offer can be revoked in the following ways:

By delivery of notice regarding revoking the proposal to the promisor.
The proposal stands revoked when the time given fo0r accepting the proposal has expired.
When the promisee fails to comply with the terms and clauses of the proposal the proposals stands revoked.
The proposal stands revoked when the offeror is dead or has become insane.
Also, if the offeree makes a counter offer then the proposal gets revoked.

According to section 7 of the Indian Contract Act, 1872, the acceptance must be absolute and unconditional. That means the other party to the contract must accept the offer without any further condition from his part.

Section 8 defines the term acceptance as “Acceptance by performing conditions, or receiving consideration.” In simple terms the performance any condition for the acceptance of any consideration for a reciprocal promise, which may be offered with a proposal is called acceptance.

Types of Offer:

Express offer: the offer which is expressed through word of mouth or through any writing the offer is called express offer (section 9).
Implied offer: the offer that is communicated through the conduct or action of a person is an implied offer.
Specific offer : when an offer is made to a definite person then such offer is called a specific offer.
General offer: general offer that is made to the general public at large and which is not made to any specific party. Any person to whom such offer is made can accept such offer.
Counter offer : where an accepted by the promise after making some modification in the original offer then it is called a counter offer.
Cross offer: when both the parties to the contract gives the same offer to one another at the same time but they were unaware of the fact that the offer they are going to make are similar.

Who can accept an offer?

The offer made can be accepted by a particular or definite person to whom the offer has been made, it can be accepted by him alone. This applies in case of a specific offer.

Boulton v. Jones, (1857) 2 H. and N. 564¹

In this case Boulton bought a hose pipe business from Brocklehurst. Jones to whom Brocklehurst owed a debt, placed an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not addressed to him. Jones refused to pay Boulton for the goods because he, by entering into contract with Brocklehurst, intended to set off his debt against Brocklehurst.

It was held that the offer was made to Brocklehurst and it was not in the power of Boulton to step in and accept and therefore there was no contract .

In case of a general offer any persons to whom the offer is made can accept it.[Carlill v. Carbolic Smoke Ball Company.]²

While accepting an offer the certain rules are to be followed :

The acceptance must be absolute and unqualified. The offer must be accepted unconditionally without making any counter offer. No further condition shall be put forward by the offeree in order to accept the offer.
The acceptance must be communicated to the offeree through proper channel of communication in the prescribed manner.
The offer must be accepted within the reasonable time.
The acceptance must show that the acceptor wants to fulfill the promise.
The acceptance cannot precede the offer.
The acceptance must be given by the party or the parties to whom the offer is made.

Intention to create legal relationship

When two parties enter into any agreement they must have in their mind the desire or the intention to enter into a legal relationship between them. Also, if there is no such intention, it is no contract. They must agree upon the subject-matter in the same sense and at the same time.

For example, A and B are friends. A jokingly tells B that he will give one million rupees to B if he runs faster than him. This agreement would not be legally binding on the parties since there is no intention on the part of A to give such a huge sum of money to B since it was just a mockery.

In Balfour v. Balfour (1919)³, a husband promised to pay his wife a household allowance of 30pounds every month. Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held, the agreement such as these were outside the realm of contract altogether.

Capacity of the Parties :

The parties to the contract must be-

A major,
He or she must not be of unsound mind ,
Must not be disqualified by law.

Majority of the party(ies) to the contract: According to section 11 of the Indian Contract Act, 1872, the parties or any of the parties entering in a contract must have attained the age of majority or in other words he or she has become 18 years old or more.

Soundness of mind: the contracting parties must be of sound mind. They must not be an idiot insane or a lunatic also they must not be in an intoxicated state. An idiot is a person who is of unsound mind from his or her birth. On the other hand a lunatic is such a person who is of unsound mind during specific period of time. And the times he is of sound mind those intervals are called lucid intervals.

In those lucid intervals he or she can enter into any contract because at that time he or she would be of sound mind. And at times when he experiences unsoundness of mind he is considered incapable of entering into a contract(Section 12).

Disqualified by law : the parties entering into a contract would be disqualified by law if such person is – (i) a citizen of a country which is an alien enemy that means the country with whom India is at war. (ii) a representative of a foreign state. If such person submit to Indian laws thyen he or she can be legally bound if he or she enters into any contract in India.(iii) a convict, or (iv) insolvent or bankrupt.

Free Consent (Section 14)

The parties to the contract must be free to express their willingness to participate in the contract. Their consent to perform the obligations of the agreement must be in their discretion. They should not be compelled forcefully to enter into the contract.

In the Indian Contract Act, the definition of Consent is given in Section 13, which states that “it is when two or more persons agree upon the same thing and in the same sense”. So the two people must agree to something in the same sense as well.

Consent is said to be free when it is not caused by–

(1) coercion, as defined in section 15, or

(2) undue influence, as defined in section 16, or

(3) fraud, as defined in section 17, or

(4) misrepresentation, as defined in section 18, or

(5) mistake, subject to the provisions of sections 20, 21 and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

When the contract is a result of :

Coercion
Undue influence
Fraud
Misrepresentation

Then the contract is a voidable contract.

And if the contract is as a result of mistake then it is a void contract.

Coercion (Section 15)

Coercion means compelling a person to enter into a contract by use of force by the other party or under a threat, ‘coercion’ is said to be employed. If a person or body of persons forcefully compels another person or persons to enter into a contract against their will or favour, by threatening to cause any harm to that person or his or her family so that person out of fear and anxiety enters into the contract. For example A threatens to shoot B if he does not transfer his property to A by signing a gift deed.

Undue Influence (Section 16)

A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

Fraud (Section 17)

Fraud has been committed when a false representation has been made either knowingly or without belief in its truth, or recklessly without caring whether it is true or false and the maker intended the other party to act upon it. Or there is a concealment of a material fact or there is a partial statement of a fact in such a manner that the withholding of the fact that is not stated makes the fact that is stated false.

Misrepresentation (Section 18)

Misrepresentation is the delivery of false or misleading information that influences the other party’s decision making process. It is an untrue or misleading statement of fact made during negotiations by one party to another party and then making or attempting to make the other party enter into a contract.

There are several forms of misrepresentation, such as :

Breach of duty
Suppression of vital fact
Suppression of material fact
Expression of opinion.

Lawful consideration

Consideration is one of the essential elements of a contract. Any agreement made without a consideration is a nudum pactum (a nude contract) and thus void. Here the term consideration is used in the sense of quid pro quo i.e. something in return. When a party to an agreement promises to do something he must get something in return as a consideration.

Section 2 (d) of the Indian Contract Act,1872, defines consideration as: “when at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”

In the English case of Currie v. Misa, (1875)⁴, Justice Lush defined consideration as:

“ A valuable consideration in the sense of law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. “ But to this definition there should be added that “the benefit accruing or detriment sustained was in return for a promise given or received”.

So if we properly analyse the definition given by Justice Lush the main point highlighted there is that the consideration is a gain or benefit on the part of the promisee and the promisor suffers loss or detriment.

Essential Elements Of a Lawful Consideration

The essential elements that constitute a lawful consideration is as follows:-

Consideration must move at the desire of the promisor:

If an individual executes an act in favour of someone but the other person did not ask for that fravour, the person doing the act cannot ask for any consideration. Or if the consideration is offered by a third party for such ct or abstinence then such a benefit received may not amount to consideration.

Consideration may move from the promisee to any other person :

Under the English law, consideration must move from the promisee. But under the Indian law, consideration may move from the promisee or any other person.

Consideration as an abstinence forbearance or a return:

If a person refrains from doing what he is privileged to do that amounts to abstinence.

Forbearance means foregoing ones legal right or claim.

As a return promise, for example, A agrees to sell his horse to B for 10,000/-. Here B’s promise to pay the sum of 10,000/- is the consideration for A’s [promise to sell the horse is the consideration for B’s promise to pay the sum of 10,000/-.

Consideration may be past, present or future:

A past consideration consists in an act already done by one a s consideration for a promise. Thus when a person promises to compensate another in return for what the latter had done for the promisor in the past or before making the promise. Thus past consideration means the consideration that took place in the past.

Present consideration is a consideration which is given simultaneously with promise, i.e., at the time of the promise. For example a person buys a pen from a stationary shop, the shopkeeper gives him the pen and in return the shopkeeper receives the consideration amount from that person. Thus it is a simultaneous process.

Future consideration means the promise to do something in the future in return of the favour or benefit received in the present.

The consideration as a detriment:

A detriment suffered by the promise can also be regarded as a consideration for example, in a contract between A and B, A lends 1000/- to B. C, a third party promises to pay the sum on behalf of B if B fails to pay the sum on time. Here in this case A suffers detriment and C derives no benefit.

Legality of object:

When the objective of the agreement is expressly declared void by the law or it is unlawful or illegal, such an agreement cannot be enforceable by law and would be declared void. An agreement may be lawful but it may not be valid agreement in the eyes of law. Section 23 of the Act declares that if the object or the consideration is not lawful, the agreement would be void.

An agreement may be unlawful in the eyes of law but it might not be illegal. Every illegal agreement is unlawful but every unlawful agreement is not necessarily illegal. An unlawful agreement is an agreement whose object is to commit any act that is less rigorous than a crime and involves a non criminal breach of law, they simply disapproved by law on the grounds of ‘opposed to public policy’. On the other hand an illegal agreement’s object may involve commission of a crime or an act that is ‘opposed to public morality’ and causes moral turpitude.

Thus an illegal agreement is void ab initio, also if any agreement that is lawful has any collateral transaction(s) which is illegal, then the whole agreement would be declared void under the law. There is no remedy available under law for the breach of illegal agreements.

The term opposed to public policy is vague and has a wide scope and the things that come under this can be changed by the legislative body according to the change in the societal values and morals. There are some agreements which are expressly declared as void by law on the grounds of opposed to public policy, such as:

Agreements of trading with enemy
Agreement which interfere with the administration of justice
Agreements in restraint of legal proceedings
Agreements in restraint of parental rights
Agreements in restraint of marriages
Agreements in restraint of trade, etc.

Conclusion:

An agreement becomes legally enforceable when it possess all the essential elements of a contract. The essential elements, such as the intention of the parties to enter into a legal relationship, legality of the object, lawful consideration, etc., provisions ensures that the contract does not violate any law. The Contract Act by incorporating all these essential elements in process the framing of contracts ensures that the contracting parties’ rights are not curtailed and all kinds of irregularities and inconveniences are avoided.