An offer when it is accepted becomes an agreement. But all agreements are not contracts. In order to become a contract, an agreement must be enforceable by law. Therefore, only those agreements which are enforceable by law can result in contracts.
Offer + Acceptance = Agreement
Agreement + Enforceability = Contract
Agreement
Under Section 2(e), promise and every set of promises, forming the consideration for each other, is an agreement. An agreement which is not enforceable by law is said to be void as per Section 2(g) of the Indian Contract Act,1872.
Classification of Agreement
All agreements can be classified as follows:
Valid Agreements
Valid agreements are enforceable by law.
Voidable agreements
Voidable agreements can be avoided at the instance of the other party. If one party avoids the contract then it will not be a valid agreement.
Unenforceable Agreement
An example of an enforceable agreement is a promissory note which is unstamped or not sufficiently stamped.
Void Agreements
These are the agreements which have no legality or validity of contract. This contract is invalid by nature and is void regardless of contract or agreement.
Illegal Agreements
Illegal agreements are against the law. So, the contract or agreement which is illegal by nature is an illegal contract.
Void, Voidable and Unenforceable contracts distinguished
A distinction is sometimes drawn between agreements which are void or voidable and those which are unenforceable. Strictly speaking, an agreement is void or voidable because of its substance, owing to flaws in the contract, or for want of free consent; while one which is unenforceable is so because of a procedural defect, as for instance, due to want of stamp, by bar of limitation, etc. It is valid, but incapable of proof. It is good in substance, though by reason of some technical defect, one or both the parties cannot sue upon it.
Contracts
Section 2(h) defines the term ‘contract’ as an agreement enforceable by law. A contract is an agreement , the object of which is to create an obligation. In the words of Anson, “the law of contract is that branch of law which determines the circumstances in which a promise shall be legally binding on the person making it.”
Voidable Contract
Circumstances which make an agreement voidable :
- When a consent to an agreement is caused by coercion, undue influence, fraud or misrepresentations, the agreement is a contract which is voidable at the option of the party whose consent was so caused. (Sections 19 & 19-A)
- If a party to an executory contract prevents the other party from performing his part of the contract , the contract becomes voidable at the option of the party so prevented (Section 53)
- If a party to a contract, in which time is essential, fails to perform his part of the contract at a fixed time, the contract is voidable at the option of the other party.(Section 55)
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Kinds of Contracts
The various types of Contract include:
- Executed and Executory Contract
- Unilateral and bilateral Contract
- Executed and executory Contract : A contract creates rights and obligations. Both the parties to a contract have mutual rights and obligations. Thus, if A agrees to sell a horse to B, then A is under obligation to sell and deliver the horse to B, and at the same time, he has the right to receive the price of the horse from B. Similarly, B is under an obligation to pay the price, and he has the right to get the delivery of the horse from A. When a party to a contract has performed his part of the obligation, the contract is called executed, though it may leave an outstanding obligation on the other side to perform his part of the promise. But where neither party has performed his part of the obligation, the contract is executory. Example: A promises to engage B as his servant from January the following year. Here, the contract is executory , because neither A nor B has done what he has promised to do. Also, we have executory contracts, in which certain acts have been performed, but there remains something to be done on both sides. Example, A contracts to purchase from B a house for Rs 8 lakhs, and pays a sum of Rs 80 thousand as earnest money. B gives possession of the house A, but does not execute a sale deed. This is an instance of an executory contract in which there remains something to be done on each side.
- Unilateral and Bilateral Contract : A unilateral contract is one in which the consideration is executed and a bilateral contract is one in which the consideration is executory.
Essentials of a Valid Contract
As per Section 10 of the Act, all agreements are contracts, if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
Thus under this Section, all agreements are Contracts if they are made between :
- The competent parties
- With their free consent
- For a lawful consideration and object
- They are not expressly declared to be void under the Act.
Offer and its Unconditional Acceptance
For a contract to be valid, there must be a legal offer and it should be accepted unconditionally.
Section 2(A) of the Act provides that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence , he is said to make a Proposal.
A statement is not a proposal , unless it is made with the view of obtaining the assent of the other party to whom it is addressed. Thus, “I propose to marry you” or “I am willing to sell this pen for 100 rupees” are proposals, as they are made with that view.
For example :
A sends an invitation to his friend B in bombay , to come to Pune to play in A’s friendly cricket match against a local team during the week-end. B sends a letter accepting A’s offer and travels to Pune at his own expense. He presents himself on the cricket field, but A refuses to include him in the team. Can B sue A for a breach of contract.
- It is clear that, in this case , A’s invitation is not an offer, but an invitation to offer. B’s letter is an offer, and unless that offer is accepted by A, there is no concluded contract, and consequently no breach of contract.By refusing to include B in the team, A has refused acceptance of B’s offer B cannot, therefore, sue A. Moreover, it is also clear that there was no intention to create a legal relationship between the parties.
Further, Section 2(b) : When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be “accepted”.
Intention to Create Legal Relations
There should be an intention to create a legal relationship or legal obligation. When there is a contract there should be a legal relationship or legal obligation on the events of the signing of the contract. If there is no legal relationship or legal obligation then it will be void.
Competency to contract
In order for an agreement to be a valid contract [1], the first ingredient which must be satisfied is that the agreement must be made by the parties that are competent to contract. A party is competent to contract if he is of sound mind, he is of age of majority, he is not disqualified from contracting by any law to which he is subject.
In one interesting case decided by Bombay High Court, a film producer and a minor girl entered into an agreement under which the minor was to act in a film. Another agreement to the same effect was also entered into by the father of the girl with the producer. When the producer failed to keep his commitment, the minor sued the producer through her father. The first agreement was, the one between the minor and the producer, void. As regards with the second agreement, the court held that it was also void. The reason given was that the consideration moving from the father was the girl’s promise to act, and as the minor was not legally competent to promise, there was no consideration at all. Hence, the contract between the producer and the girl’s father was also void on the ground of absence of consideration.[2].
Free consent
One of the essentials of a valid contract is free consent of the parties. If the contract is made by coercion, undue influence, fraud and misrepresentation then the contract is not valid. [3]
Lawful Consideration
In order to have a valid contract,its consideration and object must be lawful. For example, A promises to maintain B’s child, and B promises to pay A Rs 1000 yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations. [4]
Not Expressly Void
In accordance with Sections 20, 26, 27, 29, 30 & 56, a contract should not be expressly declared as void. In order to be a valid contract, it should not be expressly declared as void. For example, a contract with a minor is expressly declared as void.
Conclusion
Agreements and contracts happen between two or more people. All Contracts are agreements but all agreements are not contracts. Contracts if valid by law creates a legal binding upon the parties and non execution of the contract can lead to legal consequences to the parties thereof. When an offer is made to a person and in acceptance becomes an agreement.
REFERENCES
[1] Indian Contract Act, 1872, ss.11, 12.
[2] Raj Rani v. Prem Adib, AIR 1949 Bom 215.
[3] Supra 1, ss 13 – 22.
[4] Id., ss 23.
BY BHARGAV CHOUDHURY | DR. AMBEDKAR COLLEGE OF LAW, MUMBAI