First of all it is very important for us to understand the meaning of an agreement as given in the Indian law. According to Section 2(e) of the Indian Contract Act,1872- Every promise and every set of promises, forming the consideration for one another, is an agreement.
Agreement= Promise (proposal+ acceptance) + Consideration
ESSENTIALS OF AN AGREEMENT
Following are some of the essential ingredients required for the formation of an agreement-
- Two Parties– A valid agreement must consist of atleast two parties. Both the parties should have legal existence such as they must be some companies, schools, natural persons, etc.
- Proposal– According to Section 2(a) of the Indian Contract Act,1872; When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.
- Acceptance– According to Section 2(b) of the Indian Contract Act,1872; When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.
- Promise– According to Section 2(b) of the Indian Contract Act,1872; A proposal, when accepted, becomes a promise.
- Consideration– According to Section 2(b) of the Indian Contract Act,1872; When, at the desire of the promisor, the promisee 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.
WHAT AGREEMENTS ARE CONTRACT ?
According to Section 10 of the Indian Contract Act,1872- All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
The definition of a contract as stated in Section 2(h) of the Indian Contract Act,1872 says that an agreement which is enforceable by law is said to be a contract. This means that an agreement must consist of certain elements to become a valid contract. These elements are-
- Competency to contract- According to Section 11 of the Indian Contract Act,1872; Every person is competent to contract who –
- is of the age of majority
- is of sound mind
- is not disqualified from contracting by any law
2. Free consent– Consent is said to be free when it is not caused by-
- coercion, as defined in section 15, or
- undue influence, as defined in section 16, or
- fraud, as defined in section 17, or
- misrepresentation, as defined in section 18, or
- 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.
- Section 19 of the Indian Contract Act,1872 deals with the consequences of an agreement of which the consent is not free. It states that when the consent to an agreement is caused by coercion, undue influence, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.
- This simply means that if the consent to an agreement is not free then it is the discretion of the party whether they wish to continue with the contract and be at a position where they would have been if the representations made had been true or to simply avoid the contract.
- Example- A fraudulently informs B that A’s estate is free from incumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and mortgage-debt redeemed.
- Moreover, the remedy to Section 16 of the Indian Contract Act,1872 is provided in Section 19A of the Indian Contract Act,1872. It states that if the consent to an agreement is caused by undue influence, the agreement is a contract either voidable at the option of the party whose consent was so caused or the party may perform the contract, if it has received any benefits thereunder, upon such terms and conditions as to the court may seem just.
- If free consent is absent then the agreement is said to be voidable.
3. Lawful object and lawful consideration- The consideration or object of an agreement is lawful, unless-
- it is forbidden by law; or
- is of such a 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.
AGREEMENTS EXPRESSELY DECLARED TO BE VOID
There are some contracts which are expressly declared by The Indian Contract Act, 1872 to be void. These are-
- Agreement is void where both the parties are under a mistake as to a matter of fact. (Section 20 of The Indian Contract Act, 1872)
Example- A agrees to sell his cat to B at a certain price on a specific day. However, it turns out that at the time of the bargain, the cat was dead. Neither of the party was aware of this fact. The agreement is said to be void.
2. Agreement is void if consideration and objects are unlawful in part. (Section 24 of The Indian Contract Act, 1872)
Example- A promises to superintend, on behalf of B, a legal manufacturer of indigo, and an illegal traffic in other articles. B promises to pay to A, a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful.
However, if both the agreements are separable then the agreement consisting of a lawful object or a lawful consideration is valid.
3. Agreement without consideration is void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law. (Section 25 of The Indian Contract Act, 1872)
Example- A promises to give 1,000 rupees to B, for no consideration. The agreement is void.
4. Agreement in restraint of marriage, void- Every agreement in restraint of the marriage of any person, other than a minor, is void. (Section 26 of The Indian Contract Act, 1872)
An agreement to remain unmarried is also void.
5. Agreement in restraint of trade is also void. (Section 27 of The Indian Contract Act, 1872)
Exception- Saving of agreement not to carry on business of which goodwill is sold.
6. Agreements in restraint of legal proceedings, void. (Section 28 of The Indian Contract Act, 1872)
Exception 1- Saving of contract to refer to arbitration dispute that may arise.
Exception 2– Saving of contract to refer questions that have already arisen.
Exception 3- Saving of a guarantee agreement of a bank or a financial institution.
7. Agreements void for uncertainty- Agreements, the meaning of which is not certain, or capable of being made certain, are void. (Section 29 of The Indian Contract Act, 1872).
8. Agreements by way of wager, void- Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.
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