A contract is considered to be an agreement between two or more individuals or entities. It is like a promise between parties which serves as legal protection in a prospective business deal. A Contract is defined under section 2(h) of the Indian Contract Act 1872, which read as, “An agreement enforceable by law is a contract.” Enforceable here means capable of being enforced (execute) in a Court of Law. The parties to a contract have a legal right before the Court. Any person who is of majority age, sound mind and is not disqualified from contracting by any law is considered to be the person competent of making a contract under the Indian Contract Act 1872.
The Contracts can be valid, void or voidable. The valid contracts are those contracts which are enforceable in the Court. It has all the essential elements which are required in the contract. The Void contracts are those contracts which are not enforceable before the Court of Law. It means that the parties cannot seek any remedy from the Court on the terms that are mentioned in an agreement which has been made by the parties. A contract becomes void once it ceases to be enforceable before the Court. The Voidable contracts are those contracts which are enforceable before the Court of Law at the option of one or more of the parties thereto, but not at the option of the other party.
Essential elements of a Contract
To make a contract valid, it must fulfil all the essential elements of a contract.
Following are essential elements of a valid contract:
- There must be an offer by one party and acceptance by the other party.
- There must be an intention to create a legal relationship between the parties.
- The parties must have the capacity to enter into a contract, i.e. they must be competent.
- There must be a lawful object and a lawful consideration.
- Both the parties must give their free consent to the contract.
- There must be a certainty and also the possibility of performing the contract.
- All the legal formalities must be fulfilled by the parties.
Void contracts are those contracts which are valid at one point of time, that is, at the time of making the contract it is valid but subsequently becomes void. For Instance, if a person named ‘X’ agrees to pay Rs. 5,00,000 to a person named ‘Y’ after 5 years against a loan of Rs. 4,50,000. If ‘X’ dies of a natural cause in 3 years, then the contract is no longer valid, and it becomes void as there is non-enforceability of the agreed terms. Following are some of the circumstances under which a contract can become void:
- If the terms of the contracts were contingent on certain circumstances which would not take place in that specified period of time.
- If new law comes into existence and the performance of such contract may result in violating the new law.
- If due to some external circumstances, it becomes impossible to perform the contract.
- If one party to the contract fails to disclose important information or has provided inaccurate information at the time of making such a contract.
- If fulfilling the contract will result in an unlawful object.
- If both the parties to an agreement are under a mistake as to a matter of fact which is essential to the agreement.
Voidable contracts are those contracts which are enforceable before the Court of Law at the option of one or more of the parties whose consent was not free. One of the essential elements of a valid contract is free consent. If the consent is caused by any coercion, undue influence, fraud, misrepresentation and mistake, then it is not considered as a free consent. Coercion is defined as an act of committing or threatening to commit, any act which has been forbidden by the Indian Penal Code. It also deals with the unlawful detaining or threatening to detain, any property with the intention of causing the party to enter into an agreement. Undue influence takes place, where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other. This position is used to obtain an unfair advantage over the other party. Fraud includes an act committed by one party with an intention to deceive another party or to induce the party to enter into a contract. In Misrepresentation, the party does not intend to deceive the other party but gains an advantage by misleading the other party.
In case, if the consent is obtained by any means of coercion, undue influence, fraud and misrepresentation then such a contract is considered as voidable at the option of the party whose consent was so caused. For Instance, if a person named ‘P’ agrees to pay Rs. 50,000 to a person named ‘R’ for an antique chair. This contract is valid. However, the person ‘R’ was under the undue influence of ‘P’ at the time of giving consent to such an agreement. Hence, the contract stands valid from the point of view of ‘P’, and it is voidable from the point of view of ‘R’. Here, in this case, the ‘R’ has an option to choose either to accept the terms of the contract or to repudiate. If he chooses to accept the terms of the contract, the contract becomes valid. However, if he chooses to repudiate the contract, then it becomes a voidable contract.
Lal man Shukla Vs. Gauri Dutt
1913 11 All LJ 489
Facts of the case
Defendant’s nephew was absconded from the house and to find him, and the defendant sent all her servants to different parts to trace her nephew. Lal Man Shukla, the plaintiff in the case and one of the servants of the defendant, was able to trace the nephew and brought him back to the defendant. In the meantime, the defendant, Gauri Dutt, announced that whoever will bring back her nephew will be awarded a price of Rs.501. However, Lal Man Shukla was unaware of the reward when he traced the nephew. On the other hand, when the servant asked the defendant about the reward, she refused to give it. A case was then filed by Lal Man Shukla against Gauri Dutt for not performing the main event of the contract.
Issues of the Case:
- Does it become a contract?
- Is he reliable to get money from Gauri Dutta or not?
Facts of the Case:
The court held that the defendant is not liable to pay to the plaintiff as the essentials of a valid contract according to the Indian Contract Act, 1872 is incomplete, that is Acceptance and Offer. To a valid contract to take place an offer as well as acceptance is necessary. In this scenario, an offer was made, but it was not accepted by anyone. Therefore, the court further stated that as essential elements to a contract are missing, it is not a valid contract.
There are many contracts which are void-ab-initio which means that such an agreement is void right from the beginning, i.e. from the formation of such agreement. Whereas there are many contracts which were valid at the time of formation, but now it has no legal value, and such contracts are known as void contracts. In a voidable contract, one party has a right to accept or rescind the contract. Hence, it is to be noted that all the essential elements of a valid contract must be fulfilled to enjoy a legal right before the Court of law.