Ans. As per section 2(h) of the Indian Contract Act, 1872, an agreement enforceable by law is a contract. Thus an agreement backed by enforceability by law ie the intention to create legal relations, is regarded as a contract. An agreement is the prerequisite for the creation of a contract.
Every promise & every set of promises forming consideration for each other is an agreement. Thus when an offer made by a person is accepted by another, an agreement is said to be created. However an agreement is a wider term in comparison to contract. It includes even those agreements which are not enforceable since they were not created with an intention of forming legal relations, such as domestic, political or social agreements.
Thus agreement is the genus of which contract is the species & only those agreements grow into contracts which create legal relations.
Q.2 Explain briefly the essentials of a valid contract.
Ans. Section 10 provides all agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void".
Offer and acceptance
There must be a lawful offer and a 'lawful acceptance of the offer, thus resulting in an agreement.
Intention to create legal relations
There must be an intention among the parties that the agreements should be attended by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate a contract.
Lawful consideration
Consideration means "something in return". An agreement is enforceable when each of the parties to it gives something and gets something in return The payment of money is a common form of consideration. But it may also consist of an act, forbearance, and a promise to do or not to do Consideration must be real, valuable and lawful. something
Capacity of parties
The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. Every person is competent to contract who is (a) of the age of majority, (b) of sound mind and (c) is not disqualified from contracting by any law.
Free consent
The consent of the parties must be free i.e. the parties should enter into contract voluntarily and free will. Section 14 lays down that consent is not free if it i caused by (a) coercion, (b) undue influence, (c) fraud, (d) misrepresentation or (e) mistake.
Lawful object
The object of the agreement should be lawful. It should be authorised sanctioned by law. The object of an agreement is unlawful if it is forbidden by law or is fraudulent or is immoral or opposed to public policy. Or
Agreement not expressly declared void
The Indian Contract Act, 1872, has expressly declared certain agreements to be not enforceable at law, e.g. agreements in restraint of marriage, agreements in restraint of trade, wagering agreements etc. The parties to the agreement should ensure that their agreement do not fall in the category of these void agreements.
Certainty
The terms of the contract should be certain and definite and not vague. Section 29 says "Agreements, the meaning of which is not certain or capable of being made certain are void."
Possibility of performance
Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void.” If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.
Writing and registration
According to the Indian Contract Act, a contract may be oral or in writing. An oral contract is as much enforceable as a written contract. However, if there is a provision in any law prescribing that contracts should be in writing/ registered then, this formality of writing and registration should be followed.
Q.3 "The law of contracts is not the whole law of agreements nor is it the whole law of obligations." - Comment.
Ans. Obligations may arise from different sources. The law of contract deal only with such legal obligations which arise from agreements. Obligations which are not contractual in nature are outside the purview of the law of contract. For example, obligation to observe traffic rules does not fall within the scope of the Contract Act.
The other sources of obligations are: obligations under the trust law or the law of tort or the fundamental duties under the Constitution etc. They are outside the purview of the Contract law since they are not voluntarily created through an agreement. Salmond has rightly observed: "The law of contracts is not the whole law of agreements, nor is the whole law of obligation. It is the law of those agreements which create obligations and those obligations, which have their source in agreements”.
SHORT QUESTIONS:
Q.4 Differentiate between:
(a) Void agreements & Void Contracts
(b) Voidable & Void Contracts
(c) Void Agreements & Illegal Agreements
(a) Void agreements & Void Contracts
Void agreement
1. An agreement not enforceable by law is said to be void.
2. It is void right from the beginning i.e., ab initio, since one or more of the essentials of a valid contract are missing
3. No restitution of benefits is allowed.
Void contract
1 . A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable
2. It becomes void subsequently. On f account of change is law, change ein circumstances or on an account of subsequent impossibility of performance.
3. Restitution may be granted when the contract is discovered to be void or becomes void.
(b) Voidable & Void Contracts
Void contract
1 . A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
2. It is valid at the time of formation & remains valid till an event takes place which results in the contract ceasing to be enforceable.
3. A contract becomes void due to change in circumstances, change in law or subsequent impossibility of performance etc.
4. Compensation is not payable.
Voidable contracts
1 . A contract which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others. Thus it is enforceable at the option of the aggrieved party.
2. It may be voidable right from the beginning or voidable subsequently. It remains valid if the aggrieved party does not elect to avoid it within a reasonable time.
3. A contract is voidable right from the beginning if consent is caused by coercion, undue influence, fraud or misrepresentation. A contract becomes voidable subsequently on account of breach of contract or failure to perform the contract at the time fixed, if the time is of essence of the contract.
4. The aggrieved party can claim damages for loss sustained by him, if any.
(c) Difference between Void & Illegal agreements
a. Scope: An illegal agreement is narrower in scope than a void agreement. All illegal agreements are void but all void agreements are not necessarily illegal. E.g. an agreement with a minor is void, but not illegal.
b. Collateral Transactions: When an agreement is illegal, other agreements which are incidental or collateral to it are also tainted with illegality, hence void. However agreements collateral to a void agreement are not necessarily void.
c. Restitution: In the case of illegal agreement, no right/remedy is available to either party. Hence money paid under an illegal agreement cannot be recovered. Under sec. 65 if an agreement is discovered to be void any person who has received advantage/benefit must restore it or make compensation for it.
d. Punishment: In case of an illegal agreement the parties may be punished under the criminal law, in case of a void agreement (which is not illegal) there is no such punishment.