Indian Contract Act 1872 – Void Agreements | Consideration | FAQs
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The Indian Contract Act, 1872, is a fundamental law in India that regulates contracts and agreements. It defines a contract as an agreement enforceable by law, requiring elements like offer, acceptance, consideration, and the intention to create legal obligations. The Act outlines essential components for a valid contract, including free consent, lawful consideration, competent parties, and legal purpose. It also addresses various types of contracts, such as void, voidable, and contingent contracts, and provides guidelines on the performance, breach, and termination of contracts, ensuring clarity and fairness in contractual relationships.
Table of Contents
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1. Essential Elements of a Contract, Offer & Acceptance
|
Section |
Particulars |
Definition |
| 2(a) | Proposal/offer | When one person signifies to another, his willingness to do or to abstain from doing anything, with a view of obtaining the assent of that other person to such act, abstinence, he is said to make proposal. |
| 2(b) | Promise | When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. |
| 2(c) | Promisor & Promisee | The person making the proposal is called “promisor” & person accepting it is called “promisee”. |
| 2(d) | Consideration | When at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing or promises to do or abstain from doing something, such act or abstinence or promise is called consideration. |
| 2(e) | Agreement | Every promise & every set of promises, forming the consideration for each other is an agreement. |
| 2(h) | Contract | An agreement between two or more parties enforceable by law. |
1.1 Meaning of Certain Terms
- Voidable contract – An agreement which is enforceable by law at the option of one or more parties thereto but not at the option of other is a voidable contract. Ex. Any one of the essential element of valid contract is missing.
- Void ab initio – The agreement which from the very beginning is null and void with no legal enforceability is called void ab initio.
- Void agreement – An agreement not enforceable by law is said to be a void agreement. It is void ab initio.
- Void contract – A contract which ceases to be unenforceable by law becomes void. Void contract is initially a perfectly valid contract but subsequent development turns it into a void contract.
1.2 Essential Element of Valid Contract
- Agreement – For valid contract there must be an agreement which further comprises of offer (whose terms must be definite) & acceptance (which should be absolute & unconditional) between 2 or more parties.
- Free consent – If the consent of the parties is obtained through coercion, undue influence, fraud, misrepresentation or mistake then a valid contract cannot take place. The consent must be free.
- Lawful consideration – Consideration means something in return. It may be an act or abstinence. But it should be real & lawful.
- Competent parties – A competent person is one who is
-
- At least of 18 years
- Of sound mind
- Not disqualified by any law for contracting.
If any point is missing in the person then he cannot be termed as competent person.
- Legality of object – The object of the contract must be legal or else the contract will not be valid.
- Legal relationships – Parties must create legal relationship. Agreements with social or domestic obligations are not contract.
- Agreements not to be expressly declared void – Agreements should not be void or illegal.
- Certainty & capability of performance – The terms & conditions of agreement must be certain & capable of being performed.
- Legal formalities – There are certain legal formalities to be fulfilled until which the agreement cannot be enforced. For eg. Registration, etc. The contract can be oral or written. Written is preferable.
1.3 Legal Rules Regarding Offer
- Offer may be expressed or implied
- Offer may be specific or general
- Offer must give rise to legal obligation
- Terms of an offer must be definite and certain
- Offer must be distinguished from an invitation to offer
- Offer must be communicated
- Offer must be made with a view to obtaining the consent of the other party
- Offer should not impose an unnecessary obligation to communicate non-acceptance
- Communication of Special Terms
- Offer to make an offer is not an offer
1.4 Legal Rules Regarding Acceptance
- Acceptance must be absolute and unqualified
- Acceptance must be communicated
- Acceptance must be in a prescribed or reasonable mode
- Acceptance must be given within a reasonable time and before the offer lapses
- Acceptance cannot precede an offer
- Acceptance must be given only by the person to whom the offer is made
- Rejected offer can be accepted only on renewal
- Revocation of acceptance
- Acceptance to give an acceptance is not an acceptance
1.5 When Communication is Complete, in Different Cases
| Offer | Acceptance | Revocation |
| As per Para 1 of sec. 4, the communication of offer comes to an end when it comes to the knowledge of the person to whom it is made. | As per Para 2 of sec. 4, Communication of acceptance against proposer is complete when it is put into course of transmission to him & out of reach of acceptor.
Communication of acceptance against promisee or acceptor is complete when it comes to the knowledge of the proposer. |
As per Para 3 of sec. 4, Communication of revocation comes to an end against the person who revocates it, when it is put into course of transmission to whom it is made & out of reach of person revocating it.
Communication of revocation comes to an end against the person to whom it is made when it comes to his knowledge. |
1.6 Frequently Asked Questions
FAQ 1. When a communication of a revocation of an offer is complete?
As per Section 4(3) of Indian Contract Act, 1872, the communication of a revocation of offer is complete –
- As against the person who revocates it – When it is put into a course of transmission to the person to whom it is made, so as to be out of power of the person revocating it.
- As against the person to whom it is made – When it comes to his knowledge.
FAQ 2. How an offer may contain a term, the non-compliance of which would amount to acceptance?
The offer should not impose on the offeree an obligation to reply, while making the offer, the offeror cannot say that if the offer is not accepted before a certain date it will be presumed to have been accepted, unless the offeree sends his reply, no contract will arise. There is no requirement for the acceptor to send communication of non-acceptance.
FAQ 3. Mr A offers to buy Mr B’s house on certain terms. Acceptance was to be sent by B within 6(six) weeks. B within one week sent a letter accepting the offer with an alteration of one term. A then withdrew his offer. B writes again within three weeks accepting the terms originally proposed by A. Hence is this a valid contract?
A proposal accepted by the offeree is termed as acceptance. An offer can be accepted by the person to whom the offer is made.
As per Section 7(1) of Indian Contract Act, 1872, acceptance must be absolute and unqualified. A qualified acceptance or a counter offer, offering different terms amounts to counter proposal leading to rejection of offer i.e. offer comes to an end.
No contract would come into existence even if the offeree wants to subsequently accept the original offer after withdrawal of offer as it will be deemed to have lapse.
In given case, B made a qualified acceptance by altering certain terms of the original offer. So, A withdraws the same. Then, B subsequently changes his mind and wants to accept the terms originally offered by A within the specified time. This will not give rise to any contract since the original offer of A will be deemed to have been lapsed.
Moreover, it is not binding on the part of A to keep his offer open for six weeks. The contract is not valid. Now, if B still wants to purchase A’s house, he will have make a new offer to A or wait for A’s new offer.
FAQ 4. Mr Rabin tells Miss Rekha that Mr Rajib expressed his willingness to marry Miss Rekha on 25th December, 2014. How is this a valid contract?
As per Section 10 of Indian Contract Act, 1872, the essential condition of communication of offer from one party to another must exist.
In given case, there was no communication between Mr Rajib & Ms Rekha is missing.
Therefore, this is neither a valid agreement nor a contract.
FAQ 5. Makhan, seeing a mobile phone in a showcase of a shop which was marked for sale for ` 2,000, enters the shop, places ` 2,000 on cash counter and told to give him displayed mobile. Shop owner refused. Can the shop owner refuse to sell the displayed mobile?
There is a difference between offer & invitation to an offer. Price quotations and price tags do not amount to an offer but are only an invitation to an offer.
Therefore, Makhan’s picking up the mobile with price tag of ` 2000/- amounts to an offer by Makhan to purchase the same at that price. It remains to be accepted by the seller i.e. the salesman at the cash counter of the mobile store, to result it in a concluded contract. The salesman has every right to accept or refuse the offer.
Thus Makhan shall have no remedies.
FAQ 6. X Father promised to pay his son Y a sum of ` 1 lakh if Y (son of X) passed CMA examination in the first attempt. Y passed the CMA examination in his first attempt, but X failed to pay the amount as promised. Y files a suit for recovery of the said amount. State along with reasons whether Y can recover the amount under the Indian Contract Act, 1872.
As per Section 10 of Indian Contract Act, 1872, for making a contract valid, there should be an intention to create legal relationship between the parties. An agreement of a social nature or domestic nature does not create legal relationship and as such cannot be termed as enforceable contracts.
In given case, X promised his son to pay him ` 1 lakh. It is an agreement of social or domestic nature creating no legal relations.
So, Y cannot recover the amount of ` 1 lakh from X.
2. Void & Voidable Agreements
3.1 Agreements Expressly Declared Void
| Section | Details of agreements |
| 11 | Agreement by a minor. |
| 12 | Agreement by a person of unsound mind. |
| 20 | Agreement made under a bilateral mistake of fact material to the agreement. |
| 23 | Agreement of which the consideration or object is unlawful. |
| 24 | Agreement of which the consideration or object is unlawful in part and the illegal part cannot be separated from the legal part. |
| 25 | Agreement made without consideration. |
| 26 | Agreement in restraint of marriage of any person, other than a minor, is void. |
| 27 | Agreement in restraint of trade i.e. from exercising a lawful profession, trade or business of any kind, is void. The exception is of sale of goodwill. |
| 28 | Agreement in restraint of legal proceedings.
Agreement by which any party is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or Which extinguishes the rights of any party or discharges any party from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void |
| 29 | Agreements, the meaning of which is not certain, or capable of being made certain, are void. Uncertain agreements. |
| 30 | Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to a person to abide by the result of any game or other uncertain event on which any wager is made. Wagering agreements. |
| 36 | Agreements contingent on impossible events. Eg. Meeting of 2 parallel lines. |
| 56 | Agreements to do impossible acts. Impossibility may be at the time of entering into a contract or subsequent to the formation of the contract but before performance of the contract. |
| 57 | In case of reciprocal promises to do things legal and also other things illegal, the second set of reciprocal promises is a void agreement. |
2.2 Frequently Asked Questions
FAQ 1. Mr P and Mr Q bet as to whether there would be rain on a particular day of December. Mr P promises to pay ` 5,000 to Mr Q if there is rain on that day and Mr Q promises an equal amount to Mr P if there is no rain on the day. Suppose, there is no rain on that specific day of December and Mr Q filed a suit for recovery of ` 5,000 from Mr P. Can Mr Q recover the amount under the Indian Contract Act, 1872?
As per Section 30 of Indian Contract Act, 1872, an agreement by way of wager are void and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.
In given case, the agreement between Mr P and Mr Q is of wagering nature and hence void. Thus, despite of no rain on specific day of December, Mr Q cannot recover the amount of ` 5,000 from Mr P for the reason of entering into an agreement of a wagering nature.
FAQ 2. A agreed to become an assistant for five years to B who was a doctor practicing at Chennai. It was also agreed that during the term of agreement A will not practice on his own account in Chennai. At the end of one year, A left the assistantship of B and began to practice on his own account. Referring to the provisions of the Indian Contract Act, 1872, decide whether A could be restrained from doing so.
As per Section 27 of Indian Contract Act, 1872, any agreement through which a person is restrained from exercising a lawful profession or trade/business is void. But, an agreement of service by which a person binds himself during the term of the agreement not to take service with anyone else directly or indirectly to promote any business in direct competition with that of his employer is not in restraint of trade.
In given case, A agreed not to practice during the term of agreement & as soon as he left, he began to practice leading to breach of contract.
Therefore, the step taken by A is not correct & he can be restrained by an injunction from doing so.
FAQ 3. Mr X, a businessman has been fighting a long drawn litigation with Mr Y, another businessman. To support his legal campaign Mr X enlists the services of Mr Z, a legal expert, stating that an amount of ` 10 lakhs would be paid, if Mr Z does not take up the brief of Mr Y. Mr Z agrees, but at the end of the litigation Mr X refuses to pay. Decide whether Mr Z can recover the amount promised by Mr X under the provisions of the Indian Contract Act, 1872.
As per Section 10 of Indian Contract Act, 1872, an agreement must not be one which the law declares to be either illegal or void. It is one of the essentials of a valid contract. Any agreements in restraint of trade, marriage, legal proceedings etc. are void agreements.
In given case, Mr Z was to be paid by Mr X for not taking briefing of Mr Y, which is wrong legally & thus void.
Mr Z cannot recover the amount of ` 10 lakhs promised by Mr X because it is an illegal agreement and cannot be enforced by law.
3. Consideration
3.1 No Consideration – No Contract
The general rule is ex-nudo pacto actio non oritur i.e. an agreement made without consideration is void. For example if A promises to pay B `1000 without any obligation from B. This is a void agreement for want of consideration. However, the Act itself provides exceptions to this rule in section 25 itself. As per section 25, an agreement made without consideration is not void in the following circumstances –
- Promise made on account of natural love and affection.
- Promise to compensate for voluntary services.
- Promise made to pay a time-barred debt.
- Completed Gifts.
- Creation of agency.
- Contract of Guarantee.
- Remission.
3.2 Legal Rules Regarding Consideration
- It must move at the desire of the promisor
- It may move from the promisee or any other person
- Consideration must be something of value.
- It may be an act, abstinence or forbearance or a return promise.
- It may be past, present or future which the promisor is already not bound to do.
- It must not be unlawful.
- Consideration need not be adequate.
- It must not be illusory.
- It must not be opposed to public policy.
- Pre-existing obligations.
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