What agreements are contracts? (Section 10 of the Indian Contract Act, 1872): Lawcirca

What agreements are contracts? (Section 10 of the Indian Contract Act, 1872)

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An agreement simply defined by the Indian Contract Act[i] refers to every set of promises that act as consideration towards each other. If we break down this definition, then we get two main components, one a promise and other consideration. The contract law defines a promise as an accepted proposal[ii] which may further be broken into two elements i.e. proposal and acceptance of that proposal. Considering the above, one can say that an agreement is the result of a proposal made by one party and its acceptance by the other.

However, contrary to belief not every agreement is considered to be a contract. The law of contract limits itself to only those obligations that have been created voluntarily which means that those obligations, that have been imposed by law or acceptance of trust do not fall into its purview and neither do the agreements arising out of such obligations can be treated as contracts.

WHEN AN AGREEMENT IS CONSIDERED TO BE A CONTRACT?

According to Indian Contract Act, section 2 (h)[iii] an agreement becomes a contract when it is enforceable by law. However, the enforceability of the agreement by law depends on various factors that have been mentioned in Section 10 of the Act[iv].

As per the section, for an agreement to be considered a contract it must fulfil the following essentials:

  1. There must exist free consent of the parties in regards to entering into the contract
  2. The parties must be competent to enter into a contract with each other
  3. The contract must be entered into for a lawful consideration
  4. The object of the contract entered into must be lawful
  5. The contract entered into must not be illegal/void under any existing law

Therefore, we can say that all agreements which are made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object and have not been expressly declared to be void are contracts.

ESSENTIAL FOR AN AGREEMENT IS TO BE CONSIDERED A CONTRACT

1. FREE CONSENT OF THE PARTIES ENTERING INTO CONTRACT

Sections 14 to 22 of the Indian Contract Act deal with the concept of free consent of the parties entering into contract.

As per the act, consent is free when it has not been caused by either

a)      Coercion

b)     Undue influence

c)      Fraud

d)     Misrepresentation

e)      Mistake

In layman terms, it is believed that a consent which has been obtained through any of the above factors is impure and could not have been obtained, given that the other party had not been forced to enter into the contract, such force being direct or indirect in nature.

a)      COERCION

Coercion entails either committing or threatening to commit any acts which have been prohibited by the Indian Penal Code or detaining or threatening to detain the property of a person, with the intention of obtaining his consent to enter into an agreement[v]. A simple example of coercion would be obtaining of consent at gunpoint, threatening to cause hurt or damage to a person or property such as burning a man’s house or even threatening false prosecution. 

It must also be noted that consent obtained by threatening to cause harm to self is also considered to be coercion as in the case of Chikham Amiraju v. Chikham Seshamma[vi].

b)     UNDUE INFLUENCE

 Under a contract where the parties are in a relationship with each other of the kind, that one party might be in the position of dominating the will of the other and use it to obtain an advantage against the other party.

A person is said to be in a position to dominate the will of the other where either one of them holds real or apparent authority over the other or where he stands in a fiduciary relation to the other; or where the contract is made with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, mental or bodily distress. [vii] In these cases the onus to prove that the contract had not been entered under the undue influence will lie upon the person in an advantageous situation.

c)      MISREPRESENTATION

It includes three elements or situations. One, the positive assertion which is not warranted by the information of the person making such an assertion, and such an assertion are false in nature, though he believes it to be true. Two, any breach of duty although lacking an intent to deceive, but results in a gain to the person at default or anyone else claiming under him, by misleading another. Third inducing, however innocently, a party to the agreement some default or mistake in relation to the subject matter of the agreement. [viii]

d)     FRAUD

Fraud, unlike misrepresentation, necessarily includes intent to deceive another party. It includes suggesting such facts which are false in nature and the knowledge of them being false is known to the party making them. It also includes active concealment of facts, making of a promise without the intention of performing such a promise, or any other act which is done with the intention to deceive or has been expressly declared by the law to be fraudulent in nature. [ix]

e)      MISTAKE

Mistake applies to a contract in two ways. One, it may defeat the consent altogether that the parties had supposedly given which would mean that the consent was unreal or false. Two, it may mislead the parties as to the purpose of the agreement which had been contemplated by them. The concept of Mistake has been mentioned in Section 20, 21 and 22 of the Indian Contract Act.

Section 20 of the Indian Contract Act, deals with the second type of mistake or wherein the parties are misled as per the subject matter of the contract, however it does not defeat the overall consent given by the parties of the contract.

On the other hand, Section 21 refers to the effect of a mistake in relation to any law in force in India i.e. the contract is not voidable. However, if the mistake as to law is in relation to a law not in force in India, then it would have the same effect as a mistake of fact. Finally, section 22 mentions that a contract would not be considered to be voidable wherein the mistake as to a matter of fact is committed by only of the parties.

Therefore, any agreement wherein the consent has been obtained due to any of the above factors is not considered to be a contract.

2.      COMPETENCE TO CONTRACT

As per the Indian Contract Act[x] every person who has attained the age of majority i.e. 18 years, is of sound mind and has not been disqualified from any other law to which he might be subject. Any person to the contrary of this section is incapable to enter into a contractual obligation

When we discuss the capacity of a person to contract in case of a minor, there are a lot of aspects one must consider. In case of a minor’s agreement, the minor is at certain advantageous positions, due to a common belief that a minor does not possess the mental capacity a major does and hence may be taken unfair advantage of. 

 The effects of a minor’s agreement are as follows:- 

a. No estoppel against a minor

According to it a minor misrepresenting his age to enter into a contract agreement is late not estopped from setting up his status as a minor as a defence. This had been held up by the Bombay High Court in the case of Gadigeppa Bhimappa Meti v. Balangowda Bhimangowda[xi]

b. No liability in contract or tort arising out of the contract 

Since a minor is technically incapable of giving consent and hence is not competent to contract, he cannot be made liable for any damage occurring out of a minor’s agreement. Similarly, it has been held by the Calcutta High Court in the Case of Harimohan v. Dulu Miya[xii]  that if a contract cannot be converted into a tort in order to be able to sue an infant. According to the court, “if a tort was directly connected with the contract and in the means of affecting it as is a parcel of the same transaction, the minor is not liable in tort.”[xiii]

C.  The doctrine of restitution 

According to this doctrine, a minor can be compelled  to restore the property that has been obtained by him through misrepresentation; however it must be traceable in his possession. However, there is an exception when it comes to minor seeking relief. In such a case the other party is compelled to restore the property to the minor, even though it had been obtained lawfully. A prime example of this would be the case of Mohori Bibee v Dhurmodas Ghose[xiv].  However, the rule in Mohori Bibi case[xv] that a minor’s agreement is completely void has been confined mostly to cases where the other contracting party seeks to enforce some obligation against the minor. Therefore, a minor or any person on his behalf has the right to enforce such contracts or agreements which benefit the minor and are termed as beneficial contracts for eg. Contracts of marriage, apprenticeship, etc. with an option to retire from the same on attaining majority.  It must also be noted that, a person on attaining majority cannot ratify an agreement that had been entered into him when he was a minor i.e. a contract which had been void at the time of making cannot be simply turned valid by subsequent ratification as held in the case of Bhola Ram Harbans Lal v Bhagat Ram[xvi]. In case of agreements regarding the soundness of mind the law of contract[xvii] state that, a person will be considered to be of sound mind when if at the time of making the contract he had been capable to understand it as well as form a rational judgement in relation to it. Therefore, a person who usually is of unsound mind but occasionally regains his soundness may enter into the contract when he is of sound mind and vice-versa.  

The law of contract[xviii] also makes a special provision in regards to “necessaries”. In the case of Chapple v Cooper[xix], the court defined necessaries as those without which the existence of an individual is not possible. The Indian Contract Act, provides a claim for necessaries being provided to a person who is incapable of entering into a contract i.e. a person who has been termed as incapable of entering into a contract or anyone else who he is legally bound to support, is supplied with necessaries suited to his condition of life by another party or person, then that person or party supplying the necessaries will be entitled to reimburse the same through the property of such incapable person. 

3. LAWFUL OBJECT AND LAWFUL CONSIDERATION

An agreement which is not enforceable by law cannot be termed as a contract. Therefore, it is necessary that the consideration or object of the contract being entered into is lawful[xx]. The word ‘object’ in the law of the contract was not used in the same sense as a consideration but instead the very purpose of the contract.

The contract law declares that consideration and object will be considered to be lawful except under the given circumstances: 

1. Forbidden by law

where the object or consideration of a contract has been expressly declared to be forbidden or illegal by the law, then such a contract is void. 

2. Defeat any law

where the object of a contract or consideration has not been declared to be forbidden by law, but if permitted would defeat the provisions of any law. These kinds of agreements are also void for e.g. Bail bonds. 

3. Fraudulent purpose 

It makes an agreement void in regards to each other or even to commit fraud against a third party. 

4. Injurious to person or property

Any agreement entered to injure the person or property in regards to each other or third party is considered to be void. 

5. Immorality

The law usually does not permit an agreement the purpose or consideration of which is immoral and hence is considered to be void. The immorality of the agreement may depend upon various different standards of morality prevailing at the time. 

6. Public policies

The courts do not permit any agreement which could adversely affect public policy or interest and hence agreements are also termed void agreements. 

Therefore, all the agreements which conform to the essential mentioned in section 10 of the Indian Contract Act can be termed as contracts and those agreements which fail to fulfil these essentials will be termed as void and cannot be enforced by law. 

Endnotes

[i] Indian contract act section 2 ( e)

[ii] Indian contract act section 2 (b)

[iii] Indian Contract Act section 2 (h)

[iv] Indian Contract Act section 10

[v] Indian Contract Act section 15

[vi] ILR (1918) 41 Mad 33, 36

[vii] Indian Contract Act section 16

[viii] Indian Contract Act section 18

[ix] Indian Contract Act section 17

[x] Indian Contract Act Section 11

[xi] AIR 1931 Bom 561

[xii] ILR (1934) 61 Cal 1075

[xiii] Radhey Shiam v Biharilal, ILR (1918) 40 All 558: (1918) 48 IC 478

[xiv] (1902-03) 30 IA 114: ILR (1903) 30 Cal 539 (PC)

[xv] Mohori Bibee v Dhurmodas Ghose (1902-03) 30 IA 114: ILR (1903) 30 Cal 539 (PC)

[xvi] AIR 1927 Lah 24

[xvii]  Indian Contract Act section 12

[xviii] Indian Contract Act section 68

[xix] (1884) 13 M&W 252, 258: 153 ER 105[xx] Indian Contract Act section 23


Nationwide NRC: All You need to Know- Shaina Khurana

Shaina Khurana

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Shaina is a very hard-working and diligent writer. She does her work fervently and makes sure that whatever task she takes is completed in given time and is qualitative. She is an avid reader and also has been a writer for school magazine. Besides these, her hobbies include poetry and sketching.

One Reply to “What agreements are contracts? (Section 10 of the Indian Contract Act, 1872)”

  1. Dear Sir/Mam

    Very useful article. I needed this article for making a presentation and you have given me very valuable inputs. Very readable and understandable. Thank you for guiding me in this difficult times.

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