CREDIBILITY OF A CONTRACT

INTRODUCTION

There are lots of promises made and agreements formed among people, but a legal binding to them makes it a Contract. A contract can happen orally or in written form. It is bound by law and thus creates a legal obligation. Every promise or set of promises, forming the consideration for each other resulting in an agreement, when enforceable by law is known as a contract. There are also certain different factors like consent, intention, objective, consideration, legal formalities, etc that make up a contract, a valid contract, before the law. This blog deals with the basics of contracts, their validity, void contract, their integrity in India, and other things related.

WHAT IS A CONTRACT?

The term ‘Contract’ has been derived from the Latin word ‘Contructus’ which means “to work on contract” and is based on the principle of “pacta sunt servanda” meaning “pacts must be kept”. It is defined under Section 2(h) of the Indian Contract Act, 1872 and the act is not too exhaustive i.e. inclusive of all laws. “An agreement enforceable by law is a contract.” “An Agreement is every promise or every set of promises, forming the consideration for each other.” –Section 2(e). According to Salmond”Contract is an agreement creating and defining obligations between the parties[1].” An Agreement and a Contract have very distinct differences i.e. a contract is enforceable by law when the offer and acceptance are made whereas an agreement has no legal binding and is not enforceable by law.

VALID CONTRACT

A contract is called a valid contract when it satisfies all the essentials of the legitimate contract from the offer, its acceptance to free consent.

The essentials of a valid contract are:

  1. Acceptance by a party of an offer or proposal made by another party results in an agreement consensus-ad-idem.
  2. The parties to the contract must be of legal age and shall have a sane and sound mind.
  3. There should be an intention to form legal relations with the contracting parties.
  4. Parties must have mutual and genuine consent.
  5. There should be lawful objects and consideration of the contract and shall not oppose the public policy.
  6. The terms of the contract are definite.
  7. The contract made shall be capable of being performed i.e. not something impossible.

To form a valid contract, an offer or proposal must be made and its acceptance with free consent is a must. The parties must be ad-idem, the agreement made freely with full acknowledgement and without any restraint.[2]

COMPETENT PARTIES

According to Sec. 11 of the Indian Contract Act 1872, anyone who is of the age of maturity, sound mind, and is not disqualified from contracting by any law is competent to contract. Any foreign citizen or a person who is not an Indian is also competent to contract.[3] A minor is not competent to enter a contract on their own or even by any agent. This contract is void ab initio i.e. null and void. If any such contract is made between a major and a minor then the major party may be held liable.

TIME ESSENCE OF A CONTRACT

Time can be an essential element of a contract when it is expressly provided by the parties. If time is mentioned and there is a delay in fulfilment of the contract or failure in performance then the contract becomes voidable at the option of the promisee.[4] If time is not expressed in the contract, the party has to perform the contract within a reasonable time. [Section 46] Also there is no failure of contract on delay in such cases but the promisee is entitled to compensation from the promisor if any loss is suffered by the promisee. For the sale of immovable property or land then it is normally presumed that time is not of the essence of the contract.[5]

VOID CONTRACT

When a contract has the mistake of fact or misrepresentation, entered by a minor, has unlawful object or consideration, and is not accepted by free consent or forced is known as a void contract. This contract is null and void before the law and has no legal obligation on the parties.

TENDER BIDS OR SALE ADVERTISEMENTS

When an offer is made to the general public at large, the contract is not made with the whole world but it is ascertained towards the definite person who comes forward and performs the conditions of the offer. A notice inviting tender or bid is just a calling of an offer under Section 4 of the Act and the tenders filed are offers made. It does not form a contract. 

PLACE OF CONTRACT

The place of a valid contract is the place where the acceptance has been posted or made via post, fax, email, or telephone. It is to note that if during the acceptance of the contract the telephone line gets dead or there is a network issue then that contract becomes void. Also if there is disturbance because of the aeroplane sound and the acceptance goes unheard then the contract is void.  If there is no place specified in the contract for jurisdiction then the dispute can be determined in both the jurisdictions of the parties of the contract.[6]

CONCLUSION

Today, contracts have become a vital part of our daily lives. Even though the ICA, 1872 remains silent on e-contracts like clicking on ‘I Agree’ on the computers i.e. ‘Clickwrap agreement’[7], it is still a form of contract. Normal activities like promises and offers made, that we form and accept are valid contracts. Different tender bids or sale advertisements can also form a part of a contract. Corporate activities and state proposals can also be dealt with under contract when a proper offer and acceptance are made. The Indian Contract Act covers a lot of areas on a legal basis and therefore it is an important statute in India. 

Author(s) Name: Vishruti Pandey (Bihar Institute of Law, Patna)

References:

[1] J Salmond and J Williams, Principles of the Law of Contracts (first published 1945, Sweet & Maxwell)

[2] Mirahul Enterprises vs. Vijaya Sirivastava, AIR 2003 Delhi 15 (DB)

[3] Shantiniketan Co-operative Housing Society Ltd. vs. Dist. Registrar, Co-operative Societies, AIR 2002 Gujarat 428

[4] Section 55, ICA 1872

[5] Gomathinayagam Pillai vs. Palaniswami Nadar, AIR 1967 SC 868.

[6] Section 28 ICA 1872.

[7] Kriti Sharma, Law of Contract-I (First published 2013, Lexis Nexis) 23