Validity And Formation of Contracts

According to legal scholar Sir John William Salmond, a contract is "an agreement creating and defining the obligations between two or more parties"
For the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally involves the process of negotiation where the parties apply their minds make offer and acceptance and create a contract.

When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal.

When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

In order to convert a proposal into a promise, the acceptance must be
1. Absolute and unqualified - Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; it is simply a counter proposal.

2. Expressed in some usual and reasonable manner. - If the proposer prescribes any particular manner of acceptance it has to be in that manner and where no manner is prescribed it should be in a usual and reasonable manner.

Who Can Enter Into A Contract?
A person who
a. is of the age of majority according to the law to which he is subject

b. Is of sound mind - A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.

c. is not disqualified from contracting by any law to which he is subject

d. Is competent to contract.

Therefore a minor is not competent to contract and an agreement by a minor is void ab initio. He can not ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity).

The following persons are therefore incompetent to contract
1. Minors
2. Persons of unsound mind
3. Persons disqualified by law to which they are subject.

Essentials Of A Valid Contract
The requirements for formation of contract are agreement and consideration. There is sometimes said to be a third element, namely, intention to create legal relations. But this third element is rarely a problem and it is true to say that, if it is a separate element, it goes without saying in the vast majority of cases.

Agreement
Agreement is said to be reached when an offer capable of immediate acceptance is met with a "mirror image" acceptance (ie, an unqualified acceptance). The parties must have the necessary capacity to contract and the contract must not be either trifling, indeterminate, impossible or illegal.Agreement entails the transformation of negotiations into a settled bargain or deal. The negotiating process is obviously not contract and the law needs to be able to determine when that process has ceased and the parties have reached finality in their commercial arrangement.

Consideration
We have already seen that consideration involves a notion of exchange. There are rules about what constitutes an exchange and what might be exchanged in order to amount to a good consideration. We will look at these rules after we have examined the requirements of offer and acceptance. The relationship between the rules of offer and acceptance on the one hand and the rules of consideration on the other hand is that the exchange which constitutes an acceptance of an offer - in effect an exchange of promises is brought about by acceptance - is at the same time the necessary exchange which constitutes the consideration. All this will become clearer when we examine the doctrine of consideration in detail.

All agreements are contracts if they are made
1. BY THE FREE CONSENT OF PARTIES competent to contract - Consent is said to be free if it is not caused by
* Coercion - Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

* Undue influence - A contract is said to be induced by “undue influence” where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

* Fraud - Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it.

* Misrepresentation - When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation.

* Mistake - Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact. Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.

1. For A Lawful Consideration And Object -
Consideration or object is unlawful if
(1) It is forbidden by law,
(2) Is of such a nature if permitted it would defeat the provisions of any law,
(3) It is fraudulent,
(4) The court regards it immoral,
(5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.

1. Not Expressly Declared To Be Void.
Void Agreements
1. Agreements void if considerations and objects unlawful in parts.

2. Agreement without consideration is void, unless it is in writing and registered, or it is a promise to compensate for something done, or is a promise to pay a debt barred by limitation.

3. Agreement in restraint of marriage. Every agreement in restraint of the marriage of any person, other than a minor is void. It is the policy of law to discourage agreements, which restrain freedom of marriage. Where a party is restrained from marrying at all, or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void.

4. Agreement in restraint of trade. Every agreement, by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

5. Agreement in restraint of legal proceedings. Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent.

6. Agreements for uncertainty. Agreements the meaning of which is not certain, or capable of being made certain, are void.

7. Agreements by way of wager/ Bet. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to bide by the result of any game or other uncertain event on which any wager is made. (Wager means betting or gambling). However certain prizes for horseracing are exempted.

The  author can be reached at: sujay_ilnu@legalserviceindia.com