By Nirupam Deo
Published on: September 1, 2021, at 13:14 IST
Introduction
In the given article we shall discuss about what an agreement means involving all it’s intricacies under the Indian Contract Act, it’s various forms, importance and fun facts about them, the judicial cases relating to them and a little personal opinion involving all of them.
We shall discuss about the intricacies of Section 2 of Indian Contract Act which deals with the general meaning of the sections and try to derive its meaning in simpler terms.
What is an Agreement?
An agreement is defined in Indian Contract Act in Section 2(e). It is connected as “every promise and every set of promises, forming the consideration for each other is an agreement.”
Therefore, an agreement is made up of promises and considerations. A promise is a derivative of proposal. A proposal is defined in Section 2(a) of Indian Contract Act as “when one person will signify to another person his willingness to do or not do something (abstain) with a view to obtain the assent of such person to such an act or abstinence, he is said to make a proposal or an offer.”
Thus, a proposal is willingness of a person to do or abstain from doing certain activities. Here the word “willingness” signifies free consent of a person from doing or abstaining that activity. Free consent is an imperative term which means that certain activity the person has abided to do or abstain must be devoid of any form of intimidation, influence, fraud, misrepresentation or being cheated into the agreement.
When the other individual (to whom the proposal is connoted) approves the proposal, the proposal becomes to be a promise. Promise is defined in Section 2(b) of Indian Contract Act. Therefore, the transition of a proposal to promise is evident when it is accepted by the other party.
For example, Mr. A offers Mr. B to buy his car at 4 Lakh Indian Rupee, it is a proposal on behalf of Mr. A. If in this case Mr. B accepts his proposal then the proposal now turns into a promise. Contrary to this if Mr. B doesn’t accept the proposal of Mr. A, it doesn’t become a promise.
Consideration is defined in Section 2(d) of Indian Contract Act as “when at the desire of the promisor, 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.”
Consideration talks about the acts of terms performed on both the fronts of parties so as the promise to become relevant. Consideration must always be bilateral so as for it to form an agreement, both the sides must be benefitting from each others activities. If this rule isn’t followed up then the agreement becomes invalid.
For example, in the former case for the Consideration to hold true, Mr. B must pay 4 Lakh Rupees to Mr. A and Mr. A must give his car’s ownership to Mr. B after receiving payment. These acts form the consideration in this case and any side failing to perform them causes the consideration to become invalid.
Thus concluding from these examples, it is clear that agreements are promises supported with consideration. When these both criteria’s are met, the agreement is deemed to be finalized.
As it was seen in the case of Doraswamy Iyer Vs Arunchala Iyer[i] the question of Valid Consideration was challenged where Justice Mr. Cookson defined a valid consideration and stated its importance so as the partied get compensated bilaterally so as the relationship of mutual benefit to exist.
What are the conditions for a Valid Agreement?
There are few conditions which needs to be fulfilled for an agreement to fit be valid. These can be stated as:
- Proposal
A proposal is an offer that is made ab initio for the procurement of promise from the other party. No agreement can be made in absence of a proposal.
- Acceptance
There must be suo moto acceptance of proposal from the other party for a proposal to become a promise. If the proposal is not accepted by the other party, it cannot become an agreement.
- Lawful Object
The object in consideration must be lawful, I.e, the object must not be prohibited in any way for the usage in that particular territory.
For example, if Mr. A sold to Mr. B some drugs on promise of future payment but Mr. B never gave the payment for the same, since the object in question was unlawful hence, the agreement becomes void. It cannot be settled in a Court of Law. Here Mr. A cannot bring a suit against Mr. B for the object he was selling is unlawful.
- Lawful Consideration
The consideration in the question must also be lawful like the Lawful Object. If the consideration is unlawful, the agreement again becomes void.
For example, if on proposal made by Mr. A to sell his car, Mr. B wants to make payment as the gold biscuits he smuggled, it is an unlawful consideration and the agreement becomes void.
- Capacity to Contract
The persons entering into the contract must be capable of entering into the contract. Law doesn’t allow minors, people with mental ailments and insolvents from entering into a contract and this form of agreement is void ab initio.
For example, if Mr. B to whom the offer to sell the car is 16 year old boy, the agreement becomes void as Mr. B being a minor is incapable to enter into the contract.
What are the types of Agreements?
- Written Agreements
Written agreements are any kind of agreements, which are curtailed to writing, in a special layout. It is the bunch of promises and phrases of an agreement, curtailed on sheet, in easy configuration of text, and is distinct in essence. Valid written agreements have a tremendous evidentiary significance in the Court of Law, as it is susceptible to perform and comprehend. It also has simpler and considerable enforceability in the Court of Law or in a conflict.
- Oral Agreements
Oral agreements, comprises of phrases, indications, symbols through which a party communicates a promise or a set of promises to the other party, which, on acceptance by the different party, comes to be a valid oral agreement. They probably can be expressed or suggested in essence.
Valid oral agreements are Legally enforceable in the Court of Law. Nonetheless, it is not of enormous evidentiary significance as the agreement is comprehended through the message of mouth and attained by second hand understanding. In issue of a conflict or a Lawsuit, it is a problematic chore for the Court to verify the authentic disposition of facts and terms of the agreement, without the incursion of prejudice
- Certainty of An Oral Agreement
An oral agreement is as legal to same proportion, as a written agreement. The legitimacy, of an oral agreement, cannot be challenged, if it plummets in the area of the provisions stated in Section 10 of the Indian Contract Act, 1872.
In the case of Nanak Builders and Investors Pvt. Ltd. Vs Vinod Kumar Alag[ii] it was held that whereby the Court clasped that sure an oral agreement can be a legitimate and lawful Contract. Accordingly, in the stringent connotation, it is not crucial that a Contract should be written, if not stipulated by the legal intricacies or the parties themselves ponder the compression of terms of agreement in writing.
A similar case of Bose Vs Parmatma Devi & Ors.[iii], wherein the Court clasped that sure an exchange agreement can be oral and have the similar compelling consequence and legality, like a written agreement. The agreement should be in pair with the requisites documented in Section 10 of the Indian Contract Act, 1872 and therefore, will retain the comparable impetus of Legal importance, as a written agreement.
- Permissibility of Oral Agreement as Evidence
Through the Indian Contract Act of 1872, a valid oral agreement is of importance and can be implemented in the Court of Law. Still, it is invariably problematic to substantiate the validity or the precise terms of the agreement, in outbreak of conflict.
Also, Section 48 of the Registration Act, 1908, says that all non-evidentiary statement enrolled in the Act, and pertaining to any equity, either movable or immovable, shall assume consequence against any decree, agreement or statement associating to such equity, the only contradiction to at what place the agreement or statement has been attended or pursued by release of custody.
Furthermore, Section 92 of the Indian Evidence Act says that when the phrases of such Contract, award or other inclination of equity, or any circumstance compelled by Law to be lessened to the configuration of a statement, have been substantiated in terms to the previous Section, no proof of any oral agreement or testimony shall be conceded, as the bilateral terms between the groups on any uncommon tool or their negotiators in concern, for the objective of negating, differing, expanding to, or lessening from, its phrases.
Nonetheless, its requirement gives rise to an anomaly to that if there is any distinct oral agreement as to any course where the statement is quiet and the terms are incompatible, then the oral agreement may be substantiated valid. Any requirement supplementary makes an abnormality that if there is any different oral agreement which comprises a circumstance precedent to the aligning of any responsibility under any similar contract, again also oral agreement may be verified.
The Appellant in the case of S.VS Narayanaswamy Vs Savithramma[iv] strived to ascertain the validity of an oral agreement, which was ardently contended to prevail, with proportion to exchange of equity. The burden to corroborate being on the Appellant, it did so, by eliciting cheques of various proportions, towards the whole deliberation of the equity.
By eliciting several chunks of proof, which implied towards an entirety, the Court approved the validity of the oral agreement, founded on the examination of the proof furnished.
Therefore, oral agreements, in spite of sounding like a satchel of morass, can be ascertained in a Court of Law, through various circumstantial indication. Even with several testimonials to verify the validity of an agreement, the Court is frequently put up with the duty to verify and establish the terms and conditions of the oral agreements. It is very plausible that subjective predisposition and the parties not prevailing entirely ad idem, would influence the existence and doubt the truth of a valid oral agreement.
What can be understood by a Valid Agreement?
Section 2(h) of Indian Contract Act pertains to the terms of Valid Agreement. It defines the term as an enforceable agreement is called a Contract (or a valid contract).
The term “enforceability” checks various questions like whether the consent is obtained through unfair means, whether there are considerations from both the sides, if the object is lawful, is the consideration lawful, whether the people entering into the contract are capable of entering into the contract. Upon checking these factors, if it passes these criterions, the agreement is valid.
Simply, if the agreement doesn’t infringe any obscurity of law and is enforceable, it is a valid agreement.
For example, if Ram has proposed to sell his guitar to Shyam at 15000 Indian Rupees and Shyam accepts the offer and pays Ram, the agreement is valid since here the object is lawful, doesn’t violate any terms of law and is enforceable.
What is a Void Agreement?
Void agreements are exemplified under Section 2(g) of Indian Contract Act. They are the contraries of the Valid Agreement as they infringe the terms of Law and are non-enforceable. Every forbidden agreement and contract fall in its ambit. The parties can’t enforce their rights for such contract in a Court of Law. A contract that doesn’t fulfil the requirements of a contract and thereby can’t be enforced by Law is called a void Contract.
For example, Ram sold drugs to Shyam for 11000 Indian Rupee, it is a void agreement.
Void Agreements are defined in Section 2(g) of the Indian Contract Act as “An agreement unenforceable by Law is called a Void Agreement” and Section 2(j) which defines a Void Contract as “A Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
A void agreement cannot be upheld at a Court of Law because it simply ceases to exist. The victim cannot ask for any form of compensation if such agreements had existed between the parties at any given point in time. The Legal obligations of the parties cease to exist as those terms are prohibited by the Law.
An illegal agreement is an example of a void agreement where the drug dealer deals with his customer. In this case, either party agreeing have no Legal Obligations and they cannot claim compensation if one party didn’t keep their end of the bargain for the illegal nature of the act.
There can be various types of Void Contracts. They can be enumerated as:
- Void ab initio
It is a Latin term which means void since the beginning. And hence the proximity of these types of Contracts extend to any cases which are void since the beginning.
For example: In a situation where Mr. A buys a car from Mr. B. Mr. A wanted the blue car but Mr. B thought Mr. A wants the black car and made the agreement. Such contracts are void ab initio because there was no meeting of minds (agreement to the same bargain at the same time).
- Void as for the impossibility of performance
There are instances when the contract cannot be performed due to certain circumstances due to which it has to be rendered impossible. Such circumstances can be the commodity to which the bargain was made has ceased to exist or situations are making it unviable for performance, etc. In such cases, the Contracts are termed as impossible to be performed and is termed as a void contracts.
For example, a contract made to lease certain property which got demolished in an accident is void.
Void contracts as per the provisions of the Indian Contract Act, 1872
There are various agreements as per the provisions of the Indian Contract Act which renders an contract to be void. These are:
- Bilateral mistake
The bilateral mistake is dealt with in Section 20 of The Indian Contract Act. It comes into the picture when both the parties had made mistakes of some kind like the minds didn’t meet of both the parties or violation of terms from both ends, the contract then is held to be void.
For example, X wanted to buy chocolate called perk while Y, the seller gave him the chocolate called munch. The contract is void.
- Unlawful Considerations
When the objects under consideration are unlawful, the agreement is void. This provision is attached in Sections 23 and 24 of The Indian Contract Act.
For example, A wanted money in exchange for the drugs that he was selling. Here selling the drug is an unlawful consideration and hence the contract is void.
- No Considerations
When the contracts are made with no consideration it is termed void. These can be of different kinds such as :
- Gifts for as to the reasons of affection.
- Promise to pay Time barred debts
- Promise to compensate a voluntary job.
Agreement to restraint marriage of an adult
Such agreements are void and punishable in the eyes of the law. It is dealt with in Section 26 of Indian Contract Act. Any agreement made to restraint marriage either generally or partially is against public policy. Any agreement made with intention of not letting an adult person marry or inhibit it is void.
- Agreement made to restraint any form of trade
Any agreement made in connection to inhibit a person from practising business, trade or profession is void in the eyes of law. It is dealt with in Section 27 of Indian Contract Act.
- Agreements to restraint any form of Legal Proceedings
Agreements made to restrict any kind of Legal proceedings is dealt with in Section 28 of Indian Contract Act and is deemed to be void.
- An agreement with uncertain terms
Agreements, the significance of which is not certain, or adequate of being carved certain, are void. It is a crucial prerequisite that an agreement in a declaration to be constraining must be adequately defined to facilitate the Court to give it a logical connotation. An agreement to concede in the future is void, for there is no certainty whether the parties will be prepared to agree then.
If only a part of an agreement is uncertain then the contract is valid. The same is the case if the price is not specified and is dealt with in Section 9 of the Sales of Goods Act.
- Wagering Agreements
Section 30 of Indian Contract Act defines a wagering Agreement. Wagering agreements include the bargains of gambling and betting. These agreements are void in the eyes of Law. But there are exceptions to the case such as horse race betting and lottery competitions.
- An agreement contingent upon impossible acts
An agreement for the contingent of an impossible act is void. Section 36 of Indian Contract Act deals with the provisions of such cases.
- Agreement to do an impossible act
When two people agree upon an impossible act, it is void according to Section 56 of Indian Contract Act.
What are Voidable Contracts?
An agreement that is enforceable by Law at the alternative of one or more of the parties thereto, but not at the choice of another party, is a voidable contract. Voidable Contracts are valid unless one of the parties has set them aside. Voidable Contract generally happens when one side of the party is conned into entering a contract by another party.
Voidable Agreements as per provisions of Indian Contract Act
Various conditions lead to an agreement becoming void. A few are stated as follows:
- No free consent
When the consent of a person is obtained through fraud, misrepresentation or coercion then the agreement becomes avoidable at the option of one party.
- Undue influence
When the consent was obtained in such a situation where one party could dominate the decision of another, the form of the agreement becomes available.
Example A the boss of B tells him to buy his Phone for an unfair price, B fearing losing the job accepts the offer. It is a case of undue influence and is voidable at the option of B.
In such a case the burden of proving that the bargain didn’t happen as a result of undue influence lies on the person who can dominate the will of another prima facie.
- One party preventing the other to complete the terms of the Contract
When one party inhibits the other to complete its obligations, such agreement is termed voidable.
For example, D and E agreed. E is trying to fulfill his end of bargains but D is trying to stop him from doing the same, the agreement will become voidable on the option of E.
- Failure to complete an obligation in a time restrained agreement
When a party is unable to complete his given bargain at a certain time fixed by the parties at the initiation of agreement, it becomes voidable at the option of a party that bears the loss.
For example, Ram and Shyam agreed. Shyam is unable to keep his ends of the bargain on the time decided by Ram. This agreement becomes voidable at the option of Ram.
- Privity of Contract
A contract is nearest to the parties correlated with it. The advantages and privileges cannot be bestowed upon somebody who is a third party.
Commonly, in a contract, a bunch of other parties are furthermore indirectly involved. The best example is that of a tender, where numerous arguing people are implicated. But, departure can be practised only by the parties to the contract.
This fundamental tenet was repeated and expiated by the Hon’ble High Court of Madhya Pradesh.
In this case of Bakatawar Singh Vs the State of M.P[v] such a unique issue occurred. The tender was rewarded by the State Electricity Board to its sister interest. At the period of the contract, no tenderer put forward a grievance of the Board and was compensated financially.
Court held that only the Board can file complaints in such cases and no third party can interfere in it.
What are the consequences of rescission of Voidable Contract?
When an individual at whose choice a contract is voidable rescinds it, the other group thereto need not conduct any commitment therein included in which he is the promisor.
The party abolishing a voidable contract shall if he has accepted any privilege there from another party to such contract, replenish such privilege, so far as may be, to the individual from whom it was accepted.
- Mode of Communicating or revoking rescission of voidable contract
The rescission of a voidable contract may be conveyed or abolished in the same way, and liable to the same regulations, as applied to the transmission or cancellation of a proposal.
What are Express and Implied Agreements?
An express agreement is made in written or oral agreement form. The parties actually entered into an agreement with the exact terms of agreement written or spoken.
For example, Rehan made an agreement with Rohan on a written paper so as to conserve the terms and conditions of the agreement.
Implied Agreements are the type of agreements in which the agreement is formed as per the conduct of parties, the terms are not spoken or written explicitly in this case.
For example, Mr. Z enters Mr. Y’s shop and put goods on the grocery trolley and went to the counter. The conduct of Mr. Z states he wants to enter into an agreement with Mr. Y.
What is a Domestic Agreement?
A domestic agreement relates with the agreements made in household; they hold no legal value.
For example, Aditya promised his wife to buy her a diamond necklace if she makes his favorite food.
Since there is no intention to create legal relationship involved in such case, they lack enforceability and therefore are null and void.
What are Unenforceable or Illegal Agreement?
Illegal Agreements are agreements which are illegal according to the Law of the Land. They are void in the eyes of the Law.
For example, Ram selling smuggled goods to Shyam for 25000 Indian Rupees is an illegal agreement.
Conclusion
Agreements are widespread in our societies. The numerous times a transactions happens anywhere in the society is an agreement and therefore it becomes important to protect the rights of both the producer and the consumer and the concept of trade to remain fair.
There are various types of agreements which basically works on the feasibility of each to work. Some agreements are void an initio others are valid. In some cases procuring justice is easy in some cases like an oral agreement or implied agreement it is much harder and is often a question of bias.
Since no one is untouched from such agreements, it becomes important to know about their intricacies.
References
- Indian Contract Act
- Legality of object and consideration
- Definition of Void Agreement
- Voidable contract
- Valid contract
[i] Doraswamy Iyer Vs Arunchala Iyer, AIR 1936 Mad 135
[ii] Nanak Builders and Investors Pvt. Ltd. Vs Vinod Kumar Alag, AIR 1991 Delhi 315
[iii] Bose Vs Parmatma Devi & Ors CIVIL APPEAL NO. 6197 OF 2000
[iv] S.V. Narayanaswamy Vs Savithramma 2013 R.F.A. No. 1163 of 2002 c/w R.F.A.No.1164 of 2002 Karnataka High Court
[v] Bakatawar Singh Vs the State of M.P, AIR 1992 MP 318, 1992 (0) MPLJ 953