Essentials of a Valid Contract, Void and Voidable Agreements
The Indian Contract Act, 1872 is the principal general law governing contracts in India. A contract is an agreement enforceable by law. This note covers the core definitions, proposal and acceptance, consideration, competency, free consent, unlawful objects, void agreements, contingent contracts, quasi-contractual obligations and remedies for breach.
1. Important Definitions under Section 2
| Provision | Meaning |
|---|---|
| Section 2(a) - Proposal | When one person signifies to another a willingness to do or abstain from doing something, with a view to obtaining that person's assent, the person is said to make a proposal. |
| Section 2(b) - Promise | When the person to whom a proposal is made signifies assent, the proposal is accepted; a proposal, when accepted, becomes a promise. |
| Section 2(c) - Promisor and Promisee | The person making the proposal is the promisor after acceptance; the person accepting the proposal is the promisee. |
| Section 2(d) - Consideration | An act, abstinence or promise done or made at the desire of the promisor by the promisee or any other person, forming the consideration for the promise. |
| Section 2(e) - Agreement | Every promise and every set of promises forming consideration for each other. |
| Section 2(f) - Reciprocal Promises | Promises that form the consideration or part of the consideration for each other. |
| Section 2(g) - Void Agreement | An agreement not enforceable by law. |
| Section 2(h) - Contract | An agreement enforceable by law. |
| Section 2(i) - Voidable Contract | An agreement enforceable by law at the option of one or more parties, but not at the option of the other or others. |
| Section 2(j) - Void Contract | A contract that ceases to be enforceable by law becomes void when it ceases to be enforceable. |
2. Proposal / Offer and Acceptance
The Act uses the term proposal; "offer" is commonly used in contract-law study. A valid proposal must communicate a definite willingness to contract and must be distinguished from a mere invitation to offer.
Common types of offers discussed in contract law
- Specific offer: made to a particular person or class of persons.
- General offer: made to the public at large and capable of acceptance by performance according to its terms.
- Cross offers: identical offers made by parties to each other without knowledge of the other's offer; they do not by themselves constitute acceptance.
- Counter-offer: a response proposing altered terms rather than unconditional acceptance.
- Standing or open offer: remains open for acceptance from time to time according to its terms, frequently seen in tender arrangements.
- Express proposal: made in words, spoken or written.
- Implied proposal: inferred from conduct or circumstances.
Rules relating to acceptance
Section 7 requires acceptance to be absolute and unqualified and to be expressed in a usual and reasonable manner unless the proposal prescribes a particular manner. Section 8 recognises acceptance by performing the conditions of a proposal or accepting consideration for a reciprocal promise. Section 9 deals with express and implied promises.
3. Communication, Acceptance and Revocation - Sections 3 to 6
Section 3 deals with communication of proposals, acceptance and revocation by acts or omissions intended to communicate them or having that effect.
- Proposal: communication is complete when it comes to the knowledge of the person to whom it is made.
- Acceptance against the proposer: complete when put in a course of transmission to the proposer so as to be out of the acceptor's power.
- Acceptance against the acceptor: complete when it comes to the proposer's knowledge.
- Revocation: communication is complete against the person making it when put into transmission, and against the recipient when it comes to that person's knowledge.
Under Section 5, a proposal may be revoked before communication of its acceptance is complete against the proposer, but not afterwards. Acceptance may be revoked before communication of acceptance is complete against the acceptor, but not afterwards.
Section 6 deals with revocation by notice, lapse of prescribed or reasonable time, failure of a condition precedent, and death or insanity of the proposer where that fact comes to the acceptor's knowledge before acceptance.
4. Essentials of a Valid Contract - Section 10
Subject to the Act and other applicable law, the principal requirements are:
- An agreement resulting from proposal and acceptance.
- Parties competent to contract.
- Free consent of the parties.
- Lawful consideration.
- Lawful object.
- The agreement must not be expressly declared void.
- Any statutory requirement relating to writing, witnesses or registration must be complied with where applicable.
5. Competency to Contract - Sections 11 and 12
Under Section 11, a person is competent to contract if the person is of the age of majority according to the law applicable to that person, is of sound mind, and is not disqualified from contracting by any law to which that person is subject.
Section 12 provides that a person is of sound mind for contracting if, at the time of making the contract, the person is capable of understanding it and forming a rational judgment about its effect upon their interests. A person usually of unsound mind may contract during a lucid interval; conversely, a person usually of sound mind cannot contract while temporarily incapable of rational understanding and judgment.
6. Consent and Free Consent - Sections 13 to 22
Section 13 - Consent
Parties consent when they agree upon the same thing in the same sense, commonly described as consensus ad idem.
Section 14 - Free consent
Consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake, subject to the provisions of Sections 15 to 22.
Section 15 - Coercion
Coercion includes committing or threatening an act forbidden by the penal law referred to in the statutory provision, or unlawfully detaining or threatening to detain property, with the intention of causing a person to enter into an agreement.
Section 16 - Undue influence
A contract is induced by undue influence where the relations between the parties are such that one is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. The Act contains rules concerning the burden of proof in transactions that appear unconscionable.
Section 17 - Fraud
Fraud includes knowingly false suggestions of fact, active concealment, promises made without intention to perform, acts fitted to deceive, and acts or omissions specially declared fraudulent by law. Mere silence is not ordinarily fraud unless there is a duty to speak or silence is equivalent to speech in the circumstances.
Section 18 - Misrepresentation
Misrepresentation includes a positive assertion not warranted by the information of the person making it though believed true, breach of duty that gains an advantage by misleading another without intent to deceive, and innocently causing a party to make a mistake as to the substance of the subject matter.
Sections 19 and 19A - Effect
Agreements caused by coercion, fraud or misrepresentation are generally voidable at the option of the party whose consent was so caused, subject to statutory qualifications. Section 19A permits a court to set aside a contract induced by undue influence absolutely or on just terms.
Sections 20 to 22 - Mistake
- Section 20: an agreement is void where both parties are under a mistake about a matter of fact essential to the agreement.
- Section 21: a contract is not voidable merely because it was caused by a mistake as to Indian law; mistake as to foreign law is treated like mistake of fact.
- Section 22: a contract is not voidable merely because one party was under a mistake as to a matter of fact.
7. Lawful Consideration and Object - Sections 23 to 25
Section 23
Consideration or object is unlawful if it is forbidden by law; would defeat the provisions of law; is fraudulent; involves or implies injury to the person or property of another; or is regarded by the court as immoral or opposed to public policy. An agreement whose object or consideration is unlawful is void.
Section 24
Where part of a single consideration or part of one of several considerations for a single object is unlawful, or where part of a single object is unlawful, the agreement is void in the circumstances covered by Section 24.
Section 25 - Agreement without consideration
An agreement without consideration is void unless it falls within a statutory exception, including:
- a written and registered promise made on account of natural love and affection between parties standing in a near relation;
- a promise to compensate a person who has voluntarily done something for the promisor, or something the promisor was legally compellable to do; and
- a written and signed promise to pay wholly or in part a debt barred by limitation.
Section 25 also preserves the validity of completed gifts.
8. Agreements Expressly Declared Void - Sections 26 to 30
- Section 26: agreements in restraint of marriage of a person other than a minor are void.
- Section 27: agreements restraining a lawful profession, trade or business are void to that extent, subject to the statutory exception relating to sale of goodwill.
- Section 28: agreements restricting enforcement of contractual rights through usual legal proceedings, or limiting the time for enforcing rights or extinguishing rights in the prohibited manner, are void to the statutory extent, subject to recognised arbitration and guarantee-related exceptions.
- Section 29: agreements whose meaning is not certain or capable of being made certain are void.
- Section 30: agreements by way of wager are void, and generally no suit lies to recover winnings or stakes entrusted on a wager.
9. Contingent Contracts - Section 31
A contingent contract is a contract to do or not to do something if an event collateral to the contract happens or does not happen. Sections 32 to 36 contain rules governing enforcement of contingent contracts depending on the occurrence, non-occurrence, impossibility or timing of such events.
Section 56 - Impossible acts and supervening impossibility
An agreement to do an act impossible in itself is void. A contract to do an act that, after the contract is made, becomes impossible or unlawful because of an event the promisor could not prevent becomes void when the act becomes impossible or unlawful. The section also provides compensation where the promisor knew, or with reasonable diligence might have known, of the impossibility or unlawfulness and the promisee did not.
10. Certain Relations Resembling Contract - Sections 68 to 72
These provisions impose restitutionary obligations even though a conventional contract may not exist.
- Section 68: reimbursement from the property of an incapable person for necessaries supplied to that person or someone whom that person is legally bound to support.
- Section 69: reimbursement of a person interested in payment of money that another is bound by law to pay.
- Section 70: obligation of a person enjoying the benefit of a lawful, non-gratuitous act.
- Section 71: a finder of goods is subject to the same responsibility as a bailee.
- Section 72: money paid or a thing delivered by mistake or under coercion must be repaid or returned.
11. Compensation and Remedies for Breach - Sections 73 to 75
Section 73 - Loss or damage caused by breach
A party who suffers from breach is entitled to compensation for loss or damage that naturally arose in the usual course of things from the breach, or that the parties knew, when making the contract, to be likely to result from the breach. Compensation is not given for remote or indirect loss.
Section 74 - Penalty stipulated in the contract
When a contract is broken and a sum is named as the amount to be paid on breach, or the contract contains another stipulation by way of penalty, the aggrieved party is entitled to reasonable compensation not exceeding the amount named or the penalty stipulated, subject to Section 74.
Section 75 - Rightful rescission
A person who rightfully rescinds a contract is entitled to compensation for damage sustained through the non-fulfilment of the contract.
12. Quick Difference: Void, Voidable and Valid Contract
| Type | Legal Position | Example Principle |
|---|---|---|
| Valid Contract | Enforceable by law. | Agreement satisfying Section 10 and other applicable legal requirements. |
| Void Agreement | Not enforceable by law from the outset. | Agreement void under Section 2(g), including agreements expressly declared void. |
| Voidable Contract | Enforceable at the option of one or more parties but not the other or others. | Contract affected by coercion, fraud or misrepresentation, subject to Section 19. |
| Void Contract | A contract that later ceases to be enforceable. | Section 2(j), including situations governed by subsequent impossibility under Section 56. |
This page is a concise study aid. For authoritative wording, amendments and legal application, consult the current text of the Indian Contract Act, 1872 on India Code and applicable case law.