THE INDIAN CONTRACT ACT, 1872

Contract – Sec.2(h) – an agreement enforceable by law – give rise to legal obligation.  Social obligation, no contract. 

Agreement – Sec.2(e) - every promise and set of promises, forming consideration for each other.   Proposal – assent thereto – proposal accepted  - promise – agreement.

Consensus ad idem: meeting of minds in full and final agreement – agree upon the subject matter of the agreement in same sense and at the same time.  No consensus ad idem -  no contract. 

Example : A offers to sell his old Fiat car to B.  B thinks that he is purchasing A’s new Scoda car.  There is no consensus ad idem and consequently no contract.

Essential characteristics of a valid contract:  

1.      Offer and acceptance – two parties, one making the offer and other accepting it – offer must be definite – acceptance must be absolute and unconditional – acceptance must be communicated to the offeror.

2.      Intention to create legal relationship – intention of parties to the agreement to create legal relationship must – no such intention, no contract – social or domestic agreements do not contemplate legal relationship, as such no contract. 

      Balfour v Balfour – husband promises to pay household allowance to wife – separated – wife sues for allowance – domestic agreement – no contract.

     

3.      Lawful consideration - both parties give and get something in return – no consideration, no contract - consideration may be past, present or future – in cash or in kind – must be real and lawful.

4.      Competent parties – must have attained age of majority – of sound mind – not disqualified by any law – so, minor, lunatic, idiot, drunkard, etc not competent to contract.

5.      Free and genuine consent – parties are of same mind when they agree about the subject matter in same sense and at the same time – if induced by coercion, undue influence, fraud, misrepresentation, etc, there is no free consent -  no contract.

6.      Lawful object – object must not be illegal, immoral or opposed to public policy – if any legal flaw, not enforceable by law.

7.      Agreement not declared void – must not have been declared void by any law in force.

8.      Certainty and possibility of performance – terms must be certain and not vague – not possible to ascertain the meaning, it cannot be enforced – must be capable of being performed – agreement to do impossible act, no contract.

Example: (a) A agrees to sell“100 bales of cloth” to B. There is nothing to indicate. Scammel v Ouston – purchase of motor van on hire purchase – hire purchase price payable over two years -  no rate of interest or mode of payment indicated – Held, the word ‘hire purchase’ has not been precisely defined – no contract.

9. Legal formalities – essential to complete legal formalities to make the agreement binding – e.g. agreement may require payment of stamp duty, require registration, etc.