Common questions on ‘Contract Laws’
What is contract law?
Contracts are basically agreements that have the power of legal enforceability and protection. As per Section 2(e) of the Indian Contract Act 1872 (hereinafter referred to as the ICA), agreements refer to ‘every promise and every set of promises, forming consideration for each other’. As per Section 2(h) of the ICA, a contract is “an agreement enforceable by law”.
The basic gist of what contract is the following:
Proposal + Acceptance = Promise
Promise + Consideration = Agreement
Agreement + Enforceability = Contract
Therefore, Contract = Promise + Consideration + Enforceability.
*ICA is applicable to whole of India barring the state of Jammu and Kashmir.
Essentials of a contract:
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. An offer is the penultimate act leading to an agreement. Once an offer is accepted, both parties are bound by the agreement. An offer must be clear, definite, and unambiguous.
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. Acceptance can happen through speech, writing, conduct/performance, etc. Acceptance must be unqualified, absolute, clear and definite.
Consideration can be defined as the price of the promise made. Both parties must be giving and receiving consideration in order for the agreement to be supported by consideration. Consideration need not be adequate, it just needs to be valid in the eyes of law.
Minors, people of unsound mind, and/or people who are disqualified from contracting by some law to which they are subjected to, are considered incompetent to contract. The Indian Contract Act does not explicitly state whether a contract with a minor is void or voidable. However, in the case of ‘Mohri Bibee v. Dharmodardas Ghose’ observed that contracts with a minor are void ab initio, and that no restitution of benefits can be claimed by the parties. However, a party entering into a contract with a minor can seek reimbursement for supplying ‘necessities’ to the minor.
For a contract to be legal, parties must have exercised their consent freely without unlawful manipulation. Consent is not considered to be free consent when there is presence of Coercion, Undue Influence, Fraud, Mistake, Misrepresentation(for eg. Active concealment of relevant facts). In absence of ‘consensus ad idem’ or meeting of minds, contract stands void.
An agreement even if it satisfies all the above conditions would not be a contract if it is for an unlawful motive like selling prohibited narcotics or has an unlawful consideration like the promise of murdering someone in exchange of a particular amount of money.
Miscellaneous facts about Contract Laws:
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