Essentials of Indian Contract Act with Case Laws
Written by Meher Makwana
According to The Indian Contract Act 1872, “a contract is an agreement which is enforceable by law”; there is a certain obligation that needs to be fulfilled by both parties to perform the contract, and when these are in a written agreement, they become enforceable by law, it thus becomes a contract. It consists of reciprocal promises which are to be performed by parties to the contract. ‘Enforceable by law’ means when the agreement has acquired the force of the law only for those who are party to the contract mentioned.
All agreements are not contracts but all contracts are agreements.
Agreement= promise to do something+ consideration; whereas
Contract=agreement+ legal enforceability
In contract there are three types of contracts: valid contracts, void contracts and voidable contracts, in all these there are some essential ingredients which need to be followed for a contract to have legal enforceability:
- There must be an offer and acceptance: an offer has three elements for it to be made: a) when a person signifies his willingness, b) with a view of obtaining an assent, and c) other two such an act or abstinence. The terms of the offer must be definite and unambiguous. There must be communication between both parties for it to be on the same page. It must be in written format or oral whatever suits the parties.
Lalman Shukla v Gauridutt 1913, Allahabad High Court.
In this case, the defendant’s (Gauridutt) nephew has absconded from Gauridutt’s house. In this case, it was held by the court that when the Lalman Shukla(servant) had found the missing boy he had no knowledge about the offer hence there is no question of reward if a person has knowledge about the offer and then is acting accordingly with the terms then it amounts to acceptance of the offer otherwise not. - The parties must be competent to contract: the parties to the contract are said to be competent when they attain the age of majority according to the law to which he is subject, they are of sound mind and are not disqualified from contracting by any law to which he is subject too.
In Mohori Bibee vs. Dharomodas Ghose, the respondent in this case which is Ghose was a minor and the sole owner of his immovable property. The mother of Ghose, an authorized legal custodian. Ghose received a loan from Brahmo Dutt, a lender in Calcutta by saying he was an adult and had written a mortgage deed in favour of getting a loan. At the time of standing Kedarnath the agent of Brahmo Dutt received information that Ghose was a minor so he could not execute the deed but he still executed a mortgage deed from Dharam Dos Ghose. The minor filed a case against the defendant to cancel the deed as he was still a minor at the time of the execution of the contract. The court accepted the appeal and cancelled the mortgage as contracts made by the minor are null and voidable. - The parties, for the purpose of contracting, have a sound mind: A person is said to be of sound mind when he is at the time of making the contract and is capable of understanding and formulating a rational decision for his interests.
Here a person who is usually of unsound mind but has a mind of sound occasionally can also make the contract but only when he is of sound mind, but a person who is usually of sound mind, but occasionally of unsound mind may not make a contract when he unsounds mind.
For example:
A) When a patient who is in the mental asylum may contract during those intervals when he is of sound mind
B) The same person cannot be seen to make a contract who is drunk and cannot understand the terms of the contract and make a rational decision due to his drunkenness.
In Ashfaq Qureshi vs. Aysha Qureshi (2010) where a Hindu girl was married to a Muslim man, the girl filed a suit on the grounds that she was not her senses as she was under intoxication at material time and was not conscious of ongoing conversion and nikah ceremony. Also, she had not lived with that man for a single ground and as she was intoxicated she was not in a position to make a decision and form a rational judgement in regard to his interest. Therefore, the court in its judgement made this contract of marriage void. - The consent must be free: Both the parties to the contract should have their free consent when it comes to making of the contract. Two or more people are said to consent when they agree upon the same thing in the same sense. According to Section 14 of the Indian Contract Act, free consent is such that the parties should be free from coercion; committing, or threatening to commit any forbidden act by IPC or unlawfully detaining or threatening to detain any property to the prejudice of the person. undue influence; means where the relations subsisting between the parties are such that one party is in the position to dominate the will of the others, fraud; acts committed by a party to contract or with his connivance or by his agent with the intent to deceive another party thereto of his agent or to induce him to enter into the contract. misrepresentation and mistake.
For example:
A woman having advanced money for her son B, during his minority upon B’s coming of age obtains by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
In Chikkam Ammiraju v Seshamma 1917 Mad: his case it was held that the threat of committing suicide amounts to coercion within the meaning of Section 15 of the Indian Contract Act 1872 and the consent is not set to be free when the consent is taken by coercion. - Lawful consideration: Consideration is one of the important essentials of a valid contract and the consideration may be past present or it can be future and there should be some act, abstinence or promise by the promise which is constituting consideration. It is not necessary that the consideration to be in cash or kind but it must be real and must be lawful. The object of the agreement must be lawful it must not be against public policy and should not be immoral and fraudulent etc. A lawful part can’t be separated from an unlawful one.
In Fisher vs Bridges case, the defendant agreed to buy land from the plaintiff. According to the defendant, before the making of the deed, which was subject to a mortgage, the plaintiff was aware that the land would be exposed to sale and sole by the way of lottery in an illegal manner contrary to the statute. Part of the purchase money was unpaid by the defendant and the defendant made a covenant for the payment. The plaintiff sued for the payment based on this covenant. Accordingly, it was given as security for payment of debt that was tainted with illegality. Therefore, because the law would not enforce the payment of debt, it would not enforce the payment of security contained in the covenant because it sprung from, and was the creature of, an underlying illegal agreement. - Consensus-ad-idem: means meeting of minds is one of the essential requirements when it comes for a valid contract to be formed. It is said to be made when two or more persons agree upon the same thing in the same manner/sense. This signifies a matter of agreement in the same sense and there is no meeting of minds that the contract is said not to be a valid contract.
In Dickinson vs Dodds, the complainant Mr. Dickinson with an offer to sell his house to the defendant Mr. Dodds. He promised that he would keep this offer open to him until Friday. However, Mr Dodds accepted an offer from a third party and sold the house on Thursday. Mr Dodds was going to accept the offer but had said nothing as he thought he had time till Friday. The issue in this case was whether the defendant’s promise to keep it open till Friday was a binding contract between the parties. The court held that the statement made by Mr Dodds was nothing more than a promise; therefore, there was no obligation to keep the offer open, and there was no meeting of the mind. - Intention to enter into a legal relationship: it means to create a legal relationship as an intention to enter into a legally binding contract or agreement. It shows the readiness of the parties involved to accept the legal consequences of having entered into such agreements.
In Balfour vs. Balfour: This case was filed by Mrs. Balfour against her husband Mr. Balfour. They both lived in Ceylon and went to England for a holiday. During the holidays, Mrs. Balfour became ill and was advised by the doctors to stay back in England and not return to Ceylon. Thus, due to work pressure husband goes back to Ceylon leaving his wife back in England. An arrangement was made between them that Mr. Balfour will provide Mrs. Balfour with Rs. 30 every month as an allowance. For a few months, this arrangement was concrete but due to some differences they got separated and Mr. Balfour stopped sending Rs. 30 as an allowance to Mrs. Balfour. The Court dismissed this case and held that there can be numerous arrangements and agreements between two individuals but not all agreements or arrangements are contracts
Keywords: Essentials of Indian contract Act with case laws
