corporate law
This blog provides a simplified understanding of the essentials of a legally enforceable contract as laid out in the Indian Contract Act, 1872. It outlines the rules surrounding offer and acceptance, revocation, and highlights the circumstances under which agreements are voidable or unenforceable. The blog also discusses the concepts of void agreements, which are not enforceable by law.
A contract is defined as "an agreement enforceable by law," meaning it involves an accepted proposal or agreement that is legally binding.
An agreement is described as "every promise or every set of promises forming consideration for each other."
A promise is established when the person to whom a proposal is made signifies acceptance; hence, an accepted proposal becomes a promise.
An agreement must create legal obligations to qualify as a contract, ensuring it is enforceable by law.
Section 10 states that “All agreements are contracts if made with free consent by parties competent to contract, having lawful consideration and object, and not expressly declared void.”
Free consent is when two or more persons agree upon the same thing in the same sense.
Valid contracts are those that are binding and enforceable by law, having essential elements.
Void contracts cease to be enforceable by law, meaning they are not effective from the start.
A contract is voidable at the option of one or more parties but not at the option of the others.
These are agreements prohibited by law, rendering them null and void.
Contracts that are good in substance but face technical issues (such as absence of writing) are unenforceable.
Contracts created through words or writing, where an offer and acceptance are clearly communicated.
Contracts formed through the actions or conduct of the parties involved.
Contracts imposed by law where parties must fulfill obligations despite not intending to enter a contract.
Contracts formed via electronic means, also known as EDI contracts or cyber click contracts.
Contracts where both parties have fulfilled their obligations.
Contracts that are pending performance by one or more parties. These can be further classified as:
Defined as agreements not enforceable by law.
An offer is defined as a proposal made by one party to obtain assent from another concerning an act or abstinence.
Acceptance occurs when the person to whom a proposal is made signifies agreement; this turns the proposal into a promise.
| BASIS | AGREEMENT | CONTRACT |
|---|---|---|
| Meaning | Defined as described | Defined as described |
| Scope | Broader in scope | Narrower in scope |
| Legal Obligation | Cannot create legal obligations | Creates legal obligations |
| Nature | All agreements can be contracts | Not all contracts are agreements |
| BASIS | VOID CONTRACTS | VOIDABLE CONTRACTS |
|---|---|---|
| Sections | 2(j) | 2(j) |
| Meaning | Refer to earlier definitions | Refer to earlier definitions |
| Performance | Cannot be performed | Can be performed at the option of one or more parties |
| Cause | Changes in law | Lack of free consent among parties |
| BASIS | VOID AGREEMENTS | ILLEGAL AGREEMENTS |
|---|---|---|
| Meaning | Refer to earlier definitions | Refer to earlier definitions |
| Performance | Can sometimes be performed | Cannot be performed |
| Nature | Void from inception | Unlawful from inception |
| Punishment | No punishment | Punishment applies |
| Collateral | May exist | Always void |
| BASIS | OFFER | INVITATION |
|---|---|---|
| Meaning | Refer to earlier definitions | Refer to earlier definitions |
| Willingness | Must indicate final willingness | No final willingness indicated |
| Test | Reflects true intention | Invites other party to make an offer |
Contracts require at least two parties, as one cannot contract with oneself.
There must be a clear intention that the agreement aims to create legal obligations.
Some contracts may require additional formalities, such as being in writing (e.g., insurance contracts).
Contract terms must be clear and definitive, not vague.
The agreement must be capable of being performed.
Sir William Anson likened acceptance to "a lighted match to a train of gunpowder," showing that once acceptance is made, it cannot be undone. An offer remains valid until someone's acceptance converts it into a contract.
This overview of the Indian Contract Act, 1872 aims to provide a clearer understanding of the framework governing contracts in India, emphasizing essential elements, definitions, and differences in contract types.