What is an agreement?Discuss the essential elements of a valid contract? Who are competent to contract?
♦Agreement
According to Section 2(e) of the Contract Act ,1872 defines agreement as every promise 'and every set of promises forming the consideration for each other. In this context a promise refer to a proposal (offer) which has been accepted.
For example, Radha offers to sell his T.V. for Rs. 8,000 to Tapan . Tapan accepts this offer. It becomes a promise and treated as an agreement between Radha and Tapan .In other words, an agreement consists of an offer by one party and its acceptance by the other.
Thus, Agreement = Offer + Acceptance. From the above analysis it is clear that there must be at least two parties to an agreement, one making an offer and the other accepting it. No person can enter into agreement with himself. There is another important aspect relating to an agreement i.e., the parties to an agreement must have an identity of minds in respect of the subject matter. They must agree on the same thing in the same sense. This is also called consensus-ad-idem. Suppose A has two houses, one situated in South Kolkata and the other in North Kolkata. He offers to sell his North Kolkata house to B while B is under the impression that he is buying the South Kolkata house. Here, there is no identity of minds. Both the parties are thinking about different houses. Hence there is no agreement.
Essential elements of a valid contract
In order to become a contract an agreement must satisfy the essential elements provided under section-10 of the Indian Contract Act 1872, which are as follows-
I. Offer and Acceptance
There must be two or more parties to an agreement. One party makes the offer andthe other party accepts it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. The acceptance must also be according to the prescribed mode and must be communicate to the offeror.
II. Intention to create legal relationship
When the two parties enter into an agreement their intention must be to create legal relationship between them. In the absence of such an intention on the part of the parties, there is no contractual relation between them. Agreements of a social nature do not contemplate legal relationship and hence they are not considered to be contract.
III. Lawful consideration
An agreement to be enforceable by law must be supported by consideration. The word ‘consideration’ simply means something in return it is the advantage or benefit which moves from one party to another. An agreement is legally enforceable, when both the parties give something and get something in return. Consideration may also be an act or abstinence or promise to do or not to do something. It may be past, present or future.
IV. Capacity of Parties
The parties must be capable of entering into a valid contract. Every person is competent to contract if he- (a) has attained the age of majority, (b) is of sound mind and (c) is not disqualified from contracting by any law to which he is subject.
V. Free Consent
There must be a free and genuine consent of the parties to the agreement. The consent of the parties is said to be free when they enter into an agreement without being forced by any undue influence, fraud or coercion or misrepresentation. The parties are said to be of the sound mind when they agree about the subject matter of the contract in the same sense.
VI. Lawful Object-
The Object of the agreement must not be illegal, immoral or opposed to public policy. Inthe event an agreement suffers from any legal flaw it would not be enforceable byl aw.
VII. Agreement not declared void
The agreement must not have been expressly declared as void by any law in the country.
VIII. Possibility to perform legal formalities
The agreement may be made by words or written, there is no difference in respect of legal effect but it must be certain and not vague. If the agreement is vague then it is not possible to perform legal formalities.
Who are Competent to Contract
According to the provision of the Indian Contract Act ,1872 the parties who enter into a contract must have the capacity to do so. ‘Capacity’ means the competence of the parties to enter into a valid contract. Section-11 of the Indian Contract Act 1872 states that every person is competent to enter into a contract if-
i. He has attained the age of majority according to law regarding majority
ii. He is of sound mind
iii. He is not disqualified from contracting by any law to which he is subjected to
The above mentioned section has laid down the guidelines regarding the competency of the parties. The age of majority is to be determined under the Indian Majority Act 1875.
According to Section- 3 of this Act a minor is a personl attains majority after 21 years of age,
if -
* The guardian of the minors person or property has been appointed according to the Guardians and Wards Act 1890.
*Where the superintendence of a minors property is assumed by the court of work.
Section-12 of the Contract Act has laid down a test for determining the soundness of mind. The Law states that a person is said to be of a sound mind if while signing a contract he is capable of understanding and forming a rational judgment as to the effect of the contract upon his interest.
A person who is occasionally of a sound mind may make a contract when he is of a sound mind.He may be occasionally of a sound or unsound mind but can enter into a Contract,when he is capable to judge as to the effect of signing such a contract.
Three categories of person are termed as unsound mind person. They are -
Lunatic - A person can enter into a contract during the period when he is of sound mind.Lunatics means a person who occasionally sound and sometimes of an unsound mind.
However when he is of an unsound mind, he is incapable to enter into a contract.
Idiot - An idiot is a person who has completely lost his mental power. Thus an agreement with an idiot will always be void.
Drunkard or intoxicated person - A drunkard or an intoxicated person suffers from temporary incapacity. A drunkard when he is so drunk that he is incapable of forming a rational judgment as to the effect of the contract, upon his interests cannot enter into a contract. In such a case he is considered to be incapable of entering into a contract.
Where such person does not suffer from any such effect he becomes capable for entering into a contract. Besides the above mentioned person there are some other who are debarred from entering into a contract.
Aliens whose state is at war with the country, where the contract is made is void.Where a contract was made before the war in such case it may be either suspended or dissolved.
A contract with aliens friend i.e. an aliens whose state is at peace with that country can be void subject to certain restriction.
Foreign Staff and the Representatives of the foreign state have some special privileges and generally cannot be sued unless they themselves of their own submit to the jurisdiction of the law courts of this country. They can however enter into a contract and enforce these contracts in the courts of this country.
Insolvent whose properties are under the control of the official receives cannot enter into a contract. The same rule applies to those who have been declared as insolvent.Convicts while undergoing imprisonment is incapable of entering into a contract . He can entered into or sue on a contract if he is lawfully at large under a license known as ‘Ticket Of Leave’. His incapability ends after the expiry of his sentence or after his relevance.
Other than the above mentioned persons any other person can enter into a contract if the law permits him to do so.
