An agreement enforceable by law constitutes a valid contract. In the case of a contract, each party is legally bound between both parties. Under section 2(h) of the Indian Contract Act, 1872 (ICA), the term contract has been defined as an agreement enforceable by law. The term agreement has been defined under section 2(e) of the ICA, 1872 as “every promise and every set of promises forming consideration for each other becomes an agreement.” An agreement involves a promise from both sides, and when an agreement becomes enforceable under the law, a valid contract arises. An important essential element of a valid contract is the offer and subsequent acceptance to form an agreement. An offer is the manifestation of the promisor’s mind, and an offer can be both positive and negative, that is, to do or not to do something. Towards this offer, consent should be signified and communicated by an act or omission by which the promisee or the party accepting the offer intends to express their consent. This consent is known as acceptance Once the other party accepts a proposal. It is timely communicated to the party who proposed in a proper manner; it becomes a binding contract, provided that consideration and object are legal. The parties do have the intention to create legal relationships.
Essentials of a Valid Contract
It has been duly stated under section 10 of the Indian Contract Act (ICA), 1872 that all agreements are contracts if they are made by parties the free consent of parties/individuals competent to contract, with a lawful object and for a lawful consideration, and are not hereby expressly declared to be void. Thus, there are six essentials mentioned in section 10 to constitute a valid contract. These are as follows:
- There must be an offer from either side of the party and acceptance from the other party.
- There must be free consent of parties to contract.
- Parties must have the capacity to contract.
- There must be a lawful consideration.
- There must be a lawful object.
- The contract must not be hereby expressly declared to be void.
Parties must have the Capacity to Contract
One of the essentials of a valid contract, as mentioned in section 10, is that the parties to the contract should be competent to make the contract. The competency/capacity of the parties to the contract is elaborated under section 11 of the ICA, 1872. Section 11 of the ICA, 1872 states that every individual is competent to contract who has attained the age of majority according to the law to which he is subject, who is of sound mind, and is not disqualified from contracting under any law which he is subject. Thus, there are three categories of individuals who are not competent to contract. These are as follows:
- A person who is a minor.
- A person who is of unsound mind.
- A person who has been disqualified from contracting under any law to which he is subject.
1. A person who is a Minor
It has been stated under section 3 of the Indian Majority Act, 1875 that a person is deemed to have attained an age of majority when he completes the age of 18 years, except in case of a person of whose person or property a guardian has been appointed by the court in which case the age of majority is 21 years. A minor is not competent to enter into a contract as a minor is incapable of understanding the nature of the liabilities arising out of the contract. However, if the minor enters into a contract and fulfils his part of the obligations, then the other party can be compelled to fulfil their part of the contract. In these circumstances, a contract with the minor becomes legally enforceable.
There is an exception to this rule. Section 68 of the ICA, 1872 states that if another person supplies necessaries suited to a person incapable of entering into a contract, or another one that he is lawfully obligated to assist, the person who supplied those supplies is entitled to reimbursement from the incapable person’s land. This is known as a contract of necessity. If a minor’s contract of necessity, even though the person providing the necessities can reimburse the expenses from the help of minor’s assets, property, but still the minor won’t be held liable. There is a discourse regarding the definition of the meaning term. It has been held in Peters v. Fleming that the term necessity generally includes education, clothes, money advanced, etc. can be considered as necessities.
2. A Person who is of Unsound Mind
Section 12 of the ICA, 1872 states that “a person is said to be of sound mind for the purpose of contracting, if, at the time when he makes it, he is capable of understanding it and forming a rational judgment as to its effects upon his interests.” The soundness of mind is required only at the time of making a contract. It is possible that an individual who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. But, if a person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. The main criteria involved in determining whether a person is of sound mind or not is whether a person can understand the terms of the contract and form a rational judgment as to its effects on his interests or not.
Under the Indian Contract Law, an agreement with a person of unsound mind is rendered void ab initio as an individual with an unsound mind is considered incompetent to contract if the wife or any other close relative of lunatic transfers the property belonging to the lunatic with prior knowledge of the transferee about the property belonging to a lunatic, even then the sale would be rendered invalid from its inception because of the incompetency of the lunatic.
3. A person who has been disqualified from contracting under any law to which he is subject
Some individuals are disqualified under Indian Law from contracting. These include alien enemies, convicts, insolvents, foreign sovereigns, etc. An alien enemy is the citizen of the country with which India is at war. Any agreement entered with an alien enemy during the animosity or war period is rendered void. Even an Indian citizen in an enemy’s territory is regarded as an alien enemy. Under the Indian Contract Law, a convict cannot enter into a contract while serving his sentence. Still, upon completion of the sentence, he regains his capacity to enter into the contract. When an individual is declared bankrupt, he becomes insolvent and is barred from entering into any contract under the Indian Contract Law. In the case of the foreign diplomats and ambassadors, they are immunized against getting sued in Indian courts regarding enforcement of the contract unless they submit themselves to the jurisdiction of the Indian courts.
From the above discussion, it is clear that it is the capability to understand the nature of the liabilities arising out of the contract and form a rational judgment about its effects upon the interests of parties entering into a contract that determines the capacity to contract a party. There are six essentials mentioned in section 10 to constitute a valid contract. These are: there must be an offer from either side of the party and acceptance from the other party, there must be free consent of parties to contract, parties must have the capacity to contract, there must be a lawful consideration, there must be a lawful object, and the contract must not be hereby expressly declared to be void. One of the essentials of a valid contract, as mentioned in section 10, is that the parties to the contract should be competent to make the contract. There are three categories of individuals who are not competent to contract, namely: a person who is a minor, a person who is of unsound mind, a person who has been disqualified from contracting under any law to which he is subject. Entering into a contract with individuals belonging to any of these three categories would be rendered void because of these parties’ incompetency to contract under the Indian Contract Law.
- The Indian Contract Act, 1872, No. 2(h) (Indian).
- The Indian Contract Act, 1872, No. 2(e) (Indian).
- Diganth Raj, What are the essentials of Contract? IPleaders, https://blog.ipleaders.in/what-are-the-essentials-of-contract/ (last accessed Apr. 15, 2021).
- Meera Annie Koshy, What do you mean by revocation of proposals and acceptance under a contract? (2020) IPleaders, https://blog.ipleaders.in/mean-revocation-proposals-acceptance-contract/ (last accessed Apr. 15, 2021).
- The Indian Contract Act, 1872, No. 10 (Indian).
- Dr. R.K. Bangia, The Indian Contract Act, (12th Edition, 2005), Allahabad Law Agency, Haryana.
- The Indian Contract Act, 1872, No. 11 (Indian).
- The Indian Majority Act, 1875, No. 3 (Indian).
- Subodh Asthana, Capacities of Parties entering into a Contract IPleaders, https://blog.ipleaders.in/capacity-contract-ica-1872/#:~:text=Competency%20of%20parties%20to%20contract,contract%20is%20void%20ab%20initio. (last accessed Apr. 15, 2021).
- A.T. Raghava Chariar v. O.S. Srinivasa Raghava Chariar, (1916) 31 MLJ 575.