1-B. CHARACTERISTICS OFA CONTRACT 10 SYNOPSIS: A, Definition B. Agreement C. Essentials of a valid contract (Sec. 10) 1. Free consent 2. Competent to contract/Capacity of parties 3. Lawful consideration 4, Lawful object 5, Agreement not declared void D. Other essentials . Two Parties Certainty Legal formalities Intention to create legal obligation Capable of performance . Consensus-ad-idem (identity of mind) 2A RSV E. Conclusion A. DEFINITION: + Sec. 2 (h) of the Indlan Contract Act defines a contract aS an agreement enforceable by law. - Pollock defines it as “every agreement and promise enforceable at law is a contract”. : St William Anson defines a contract as a ‘legally binding agreement between two or more persons by which rights te acquired by one or more to acts or forbearances on * Part of the others”, ee1B. CHARACTERISTICS OFACONTRACT . y 4, Sir Salmond defines a contract is “an Aree creating and defining obligations between the Pitticg X.g.: A enters into a contract to sell his car 1) Big Rs. 10,000/- cn a certain date and if A has not acte| in th same ‘auc, then B can enforce the contract through , Court of law. B. AGREEMENT: 1. If a proposal (offer) can be accepted by the acceptor, then it becomes a promise on ‘he part of the proposer (offer). 2. An agreement is defined as “every promise or set of Promises, forming consideration for each other is an agreement”. (Sec. 2 (ec) 3. A promise is defined ‘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” (Sec.2 (b)) 4. The rules of agreement and contract are as follows: Agreement = Offer + Acceptance Contract = Agreement + Enforceability at law So, all agreements are not contracts but all contracts are agreements. 5. The essence of a contract is also the identity of ming | (consensus ad idem) of both the parties ie, both the | parties must have same thinking and sense about the terms of agreement etc.1p CHARACTERISTICS OFACONTRACT 12 Law of contracts is not the whole law of agreements nor the whole law of obligations. There are several agreements which do not give rise to legal obligations. They are, therefore, not contracts. similarly, there are certain obligations which do not necessarily spring from an agreement, e.g., (i) Torts or civil wrongs, (ii) Quasi contracts (iii) Judgments of Courts. These obligations are not contractual in nature. But even then, they are enforceable, Salmond has rightly observed that the law of contract js ‘not the whole law of agreements, -nor is it the whole law of obligations. It is the law of those agreements which create obligations and those obligations which have their sources in agreements’. It includes all obligations which are not contractual in nature and agreements which are social in nature. C. ESSENTIALS OF A VALID CONTRACT: (Sec. 10) Sec. 10 of Indian Contract Act, 1872 describes essentials of a valid contract. According to Sec. 10, all agreements are contracts, if they are made by the free consent of parties, competent ‘0 contract, for a lawful consideration and with a lawful object and are not expressly declared to be void by law. An agreement to become a contract must have the folk Owing essentials: (11 essentials)h } fF 1-B. CHARACTERISTICS OFACONTRACT 1, Free consent: For the creation of a contract, the Parties must hayg --given their free consent. The term ‘consent’ means ‘ater upon-a-subjéct matter in the same sense and the Same time’. Both the parties must have the same ming and thinking about the terms of the contract. In the absence of free consent, the agreement becomes void or voidable. A free Consent is vitiated by mistake, coercion, undue influence, fraud, misrepresentation, etc. E.g.: A is forced to sign a Promissory note at the point of a pistol. Here A's Consent is not free, Hence it is a voidable contract, Ranganeyakamma Vs. Alwarchetti; The term ‘Competent to contract/Capacity of Parties’ refers to physical and mental capacity and not financial capacity, unless law has declared a person as financia] ly insolvent. The parties to the agreement must be Capable of entering into a valid contract. In other words, they must be1B. CHARACTERISTICS OFACONTRACT 14 competent to enter into a contract. A minor, a lunatic, idiot, drunken persons and any legally disqualified person like insolvent are not eligible to enter into a valid contract pecause of their incompetency. A minor is a person who has not completed 18 years of age. An agreement with or by a minor is void ab initio {invalid from the beginning). Mohiribibi Vs. Dharmodas Ghosh: A minor had executed a mortgage for Rs. 20,030/-. The money lender had paid Rs. 8,000/- on the security of mortgage. The minor sued for setting aside the mortgage, as the minor contract was invalid. The Court held that a contract by a minor was void ab initio and any amount advanced by the lender could not be recovered from the minor. 3. Lawful consideration: Every agreement must be supported by money consideration. Consideration means ‘something in return’. For existence of consideration, both the parties to the contract must have some gain and some loss. If one party always gains and another party always loses, then there is NO consideration. The consideration need not always be in cash or in kind. Further the consideration may be executory, executed oT past. However, it must be real and lawful and should not be Vague. If it is unlawful, then the agreement is void.cs k 1-B, CHARACTERISTICS OFACONTRACT Rs. 200/- to Bin considera, E.g.: A promises to pay eration is illegal. of B murdering D. This consid Abdul Aziz Vs. Masum Ali: ey for rebuilding a mosqy, A promised B to donate mon bsequently. Here, sing, but he failed to pay the amount su ‘something in return’ is not present, there is y consideration and hence the contract was held void. 4, Lawful object: ‘The object of the agreement must be lawful. In othe . words, it must not be illegal, immoral or opposed to public policy. Pearce Vs. Brookes: BS firm of coach builders hired out a carriage to a Ce: that it was used by her to attract men. a a - oe to pay the hire. The Court held that oe sa could not recover the hire, as the for an illegal object. 5. Agreement not declared void: The agreement must not have been void by any law of our country. For e. agreement in restraint of trade are iste the Indian Contract Act. cc wy declared cl Bering contract, ared voig as per Only such contracts which are not alone valid contracts and th o law. Pee ior deg d vi able ; Oi ble Ma ate1.B, CHARACTERISTICS OFA CONTRACT 16 p. OTHER ESSENTIALS: 1. Two parties: A contract is a legally binding agreement. When one person makes a proposal and when the other person (ie., the person to whom the proposal (offer) is made) accepts it, then a contract is made out. Thus in a contract, there must be two or more parties to the transaction/s. 2, Certainty: An agreement must be certain and definite to constitute a valid contract. The terms and conditions of the contract must be specific and certain. For example, A agrees to sell his house to B, but A has not clearly mentioned which of his houses, he is going to sell to B. Here the terms of the agreement are. uncertain and hence the agreement is void. 3. Legal Formalities: An agreement may be oral or in writing. But if the law requires a contract to be in writing in stamped paper and/or to be registered, then such legal formalities must be complied with. Only then, the agreement becomes a. valid contract, 4. Intention to create legal obligation: The parties entering into an agreement must have aN intention to create legal relationship. It there is no such 'ntention to create legal relationship on the part of both theJ 1-B. CHARACTERISTICS OFACONTRACT b arties, then there is no contract between them. For 5 parties, ‘m. F invitation to marriage, invita * are all Only invitati arri vitation to dinner, etc domestic/social agreements as there is absence of intentigy, 01 to create legal relationship. Balfour Vs. Balfour: An agreement between the husband and the wife tha, the husband would send & 30 to wife every month is an agreement of domestic nature, not creating any legal relationship and hence the wife could not legally enforce the agreement. 5. Capable of performance: The terms of the agreement must be capable of being performed. If there is an agreement to do an act which is impossible, then such agreement is void. E.g.: A agrees with B to discover treasure by magic. Such an agreement to do an impossible act is void, 6. Consensus Ad-Idem; (Identity of mind) The parties must have agreed upon the s ubject matter in the same thinking and sense, For example, A has got two cars ~ one Santro and th other Maruti. A offers to sell his Santro to B, but B bel 7 that A has only Maruti car, agrees to buy the car. Here eves two parties are thinking about different the - Subject Matter there is no identity of thinking and hence the areen, - So ent is void.STICS OF ACONTRACT 18 Here, A intended to contract with C, but contracted with B pelieving him to be C. The contract was held void que to the absence of consensus-ad-idem. E. CONCLUSION: Only if all the above eleven essentials are satisfied, an agreement becomes a contract and is enforceable by law. Even if one of the above mentioned essentials are not complied with, then the agreement is not legally enforceable and hence cannot become a contract. Thus the quotation ‘all agreements are not contracts, but all contracts are. agreements’ is correct. yw LH