Define a contract. Explain the essentials of a valid contract.

A contract is a voluntary legally binding agreement between two or more parties.
 Contract is a branch of the law
of obligations in jurisdictions of the civil
law tradition. Contract law is concerned
about the rights and duties that results from agreements.

All contracts are agreement but not all
agreement is contract.

Only that agreement that is enforced by
law is contract.

For an agreement to be legally valid
must have the essentials of valid contract as per section 10 of the Indian contract
act.

According to section 10 “ All agreements
are contracts if they are made by the free consent of parties, competent to
contract, for a lawful consideration and with a lawful object and are not
expressly declared to be void” 

Essentials of Valid Contract:

1. Offers and Acceptance: For a contract
to be valid there must be a lawful offer by one party and lawful acceptance by
another party.

2.  Legal Relationship: For a agreement to be valid, the parties must
create legal relationship. For Agreement of
social or domestic nature, legal relationship is not considered.

3.   Lawful Consideration:  Consideration
has been defined as the price paid by one party for the promise of the other. An
agreement is enforceable only when both the parties get something and give
something.

 4.  Capacity of Parties:  Parities
to an agreement must be capable to contract. Even if one of the parties is
not capable of contract, then the contract is invalid.

 5.  Free Consent: The parties must
agree upon same thing in the same sense.

 6. Lawful Objects: Object of an
agreement must be valid. It means the design of the contract.

7.  Writing and Registration: A contract may
be oral or in writing according to Contract Act. It is required
for the validity of a contact that the agreement must be in writing and signed
and attested by witness and registered if so required by the law.

8. Certainty: According to Section 29 of the Contract Act,
“Agreements the meaning of which are not certain or capable of being made
certain are void.”

9. Possibility of Performance:
According to section 56 lays “An agreement to do an act
impossible in itself is void.”

 10. Not Expressly Declared Void: Condition for the contract should be
capable of performance.

"A stranger to contract cannot sue". Explain. Discuss the exceptions to this rule.

Introduction

           A contract is an agreement between two or more persons/parties subject to certain terms and conditions for a lawful consideration. Indian Contract Act defines Contract as "an agreement enforceable by law."  For example,  X and Y enter into an agreement. X promises Y to Sell his Car for Rs.5,00,000/- and Y accepts to purchase it for the said amount. It is a Contract between X and 'Y'.      The general rule is that only those person who are parties to a contract may sue and be sued on that contract. Any person other than the parties/ persons to a contract is called "Stranger to the Contract"    That means in the above example X and Y may sue and be sued. There are two consequences of this rule:

        1) A person who is not a party to a contract cannot sue upon it even though the contract is for his benefit and he provided consideration. This rule is known as the Doctrine of Privity of contract. Privity of contract means a relationship subsisting between the parties who have entered into contractual obligations. It implies a mutuality of will and creates a legal Bond or tie.

2) A contract cannot confer rights or impose obligations arising under it on any person other than the parties to it. Thus, if there is a contract between A and C, C cannot enforce it.

Exceptions to the Doctrine of Privity of Contract:

      The following are the exceptions to the doctrine Privity of Contract.In other words "a stranger to a contract can sue.


1) A trust or charge :

                   A person in whose favor a trust or other interest in some specific immovable property has been created may enforce it even though he is not a party to the contract

Example :

a) A agrees to transfer certain properties to B to be held by B in trust for the benefit of C. C can enforce the agreement (I.e, trust) even though he is not a party to the agreement

b) A husband who was separated from his wife executed a separation deed by which he promised to pay to the trustees all expenses for the maintenance of his wife. In this case, court held that the agreement created a trust in favour of the wife and could be enforced.   [Gundy Vs Gundy (1884)]

c) A had a son SA and B had a daughter DB. A agreed with B that in consideration of the marriage of DB with SA, he would pay to DB, his daughter in law an allowance of 5000 a month in perpetuity. He charged certain properties with the payment with the power to DB to enforce it. In this case, court held that, DB although no party to the arrangement, was clearly entitled to recover the arrears of the allowance. [Khwaja Mohd. VS Husaini Begum (1910)]



2) Marriage settlement, Partition or other family arrangements : 

           Where an agreement is made in connection with marriage, partition or other family arrangements and a provision is made for the benefit of a person, he may sue although he is not a party to the arrangement

Examples:

      a) Two brothers on a partition of joint properties agreed to invest in equal share a certain sum of money for the maintenance of their mother. In this case, she( Mother ) was entitled to require her sons to make the investment.

     b) J's wife deserted him because of his ill treatment. J entered into an agreement with his father in law to treat her property or else pay her monthly maintenance, subsequently, she was again ill treated and also driven out, here she was entitled to enforce the promise made by J to her Father.

3) Acknowledgement or estoppel

          If the promisor by his conduct or acknowledgment or part payment or by estoppel creates privity of contract between himself and the stranger, the stranger can sue.

Example:  A receives some money from B to be paid over C. A admits of this receipt to C. C can recover the amount from A who shall be regarded as the agent of C. 

4)  Assignment of a contract

    If the benefits under the contract are assigned to the third party, the assignee can sue.

Example : 

Krishnan Lal Sahu Vs. Promila Bala, A.I.R (1928) 518 cal. In this case, Court held that "the assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties.

5) Contracts entered into through an agent
  
         In a contract of Agency, a person appoints another person to act on his behalf with a third party. The person who appoints another person is called 'Principal' and the person, who is appointed is called 'Agent'. When an agent enters into a contract on behalf of the principal, the principal can enforce the contract.( here Principal is a stranger to the Contract; the agent and other parties are parties to the Contract.
      


[Note: A stranger to  Contract cannot sue. But, a stranger to Consideration can sue. Both have exceptions.]

Explain the remedies available to an aggrieved party on the breach of a contract.

Breach of Contract :-
Breach means violation of law. The breach of contract means to break the contract or not to act upon the contract. When any party fails to perform its duties in a lawful contract it is called breach of contract. The injured party has a right to take action against the party who has failed to perform his part of contract.


REMEDIES or RIGHTS OF AGGRIEVED PARTY :-
On the breach of contract following remedies are available to an injured party.


1. Claim for Damages :-
If contract is broken, the injured party has a remedy to claim for damages and losses suffered by him. Injured party is entitled to receive compensation of loss from the party who has broken the contract.The aim of this remedy is to provide the injured party the same benefits which it would receive in case of the performance of contract.

Following are important types of damages :


i. :- Special Damage :- Under a special circumstances special damages takes place from breach of contract.

Example :- If the machinery of any factory arrives late and due to this reason one party suffers a loss or profits it is called special damage.


ii. General Damage :- If injured party suffers a loss due to non performance of the contract it is called general damage. The injured party can recover from the guilty party the ordinary damages suffered by him.

Example :- Mr. Robin contracts to pay 3 lac to Mr. Peter on 1st April. Mr. Robin does not pay the money on that day. Mr. Peter is unable to pay her debts and suffer a loss. Mr. Robin is liable to pay Mr. Peter principal amount and also interest on it.


iii. Exemplary Damages :- These damages are awarded in order to punish the guilty party for the breach of contract and not to compensate the loss of the injured party.

These damages are awarded in dishonor of cheque and case of breach of contract to marry.


iv :- Nominal Damages :- When the injured party suffers no loss the contract may award him nominal damages to recognize his right.


2. Suit For Injunction :-
Injunction means the order of the court. It may be used to prevent any wrongful act. In case of contract it is used to prevent that act which is involved in breach of contract.

Example :- Suppose Mr. Yuvraj a film producer contracts with Miss. Neha to sign in his movies for ten years and not to sign in any other film. After one year she contacts with other film producer Mr. Sethy during the period of contract. The court may issue injunction on a suit by Mr. Yuvraj to restrain Miss. Neha from signing in film of Mr. Sethy.


3. Specific Performance :-
A degree of specific performance is an order of the court. It is usually granted in those contracts related to house, land and plot. In some cases compensation to pay. So court may issue the degree of specific performance and can compel to defaulter party the performance of contract.

Example :- Mr. Tipu agrees to sell his house to Mr. Amir, who agrees to purchase. But due to some reasons Mr. Tipu commits breach . At the suit of Mr. Amir court may ask Mr. Tipu to carry out the contract.


4. Recession Of The Contract :-
For the breach of contract it is an equitable remedy. When one party of the contract commits breach and other party may rescued the contract that he may get free from all its obligations for the performance of contract. Due to such recession and non performance injured party is entitled to get compensation for the damages and loss.

Example :- Mr. Sanjay pledges the defence savings certificates to Mr. Panday and get loan. But Mr. Sunjay does not return the loan. Mr. Panday may file a suit for recession of the contract responsibility to return the defence savings certificates on payment.


5. Quantum Merit :-
It means"So much as deserves" we can explain it by the following example :

Example :- Suppose Mr. Ali entered into contract with Mr. Shawn that they will construct one room jointly. Mr. Ali will construct the wall while Mr . Shawn will build the roof. Now Mr. Ali completes his job but Mr. Shawn fails to build the roof of the room. Now in this case Mr. Ali is entitled to receive the award according to his work done by him.This claim of Mr. Ali will be called a claim of "Quantum Merit." The court will award to Mr. Ali keeping in view the work or services performed by him.

"A stranger to contract cannot sue". Explain. Discuss the exceptions to this rule.

Naresh offers to sell his car to Mukesh for 4 1,50,000. Mukesh replies "I will pay 1,20,000 for it." Naresh refuses to sell at this price. Mukesh then offers to pay 1,50,000 to Naresh. But Naresh refuses to sell his car. Can Mukesh sue ? Give reasons.

Explain the meaning of 'Consent' with an example. When consent is said to be free ?

Introduction

In our daily lives, we come across contracts so many times without even realizing it. Be it buying goods from a shop, availing cable services or installing an app on our phone, contracts are everywhere. Contracts are an indispensable part of the business. Every transaction in some way or the other uses contracts, whether written or verbal. Contracts in India are governed by the Indian Contracts Act, 1872. The Act extends to the whole of India except the state of Jammu & Kashmir.

What is a contract?

Over the years various authors and jurists have tried to define ‘what are contracts’ but none of the definitions have satisfactorily captured the essence of a Contract. Basically, a contract is a bundle of rights and obligations binding parties to one another in exchange of some consideration. The Indian Contract Act 1872 defines contract as “An agreement which is enforceable by law is a contract”. This means that all agreements are not contracts. Only those agreements which can be enforced by law are contracts. For an agreement to be enforceable, it must satisfy certain essentials laid out by law to become valid contracts.

Essentials of a contract

Section 10 of the Indian Contract Act, 1872 provides that:

• There should be an agreement between the two parties. When a proposal by one party is accepted by the other, it becomes an agreement
• The parties entering into an agreement should be competent to contract.
• There should be a lawful consideration and a lawful object in the agreement.
• There should be free consent of the parties entering into the contract.
• The agreement must not be expressly declared void by the law.

This Article will only focus on one essential of a valid contract, which is Free Consent and its importance in Contract Law.

Consent

For a Contract to be valid, the consent of the parties must be genuine. The principle of consensus-ad-idem is followed which means that the parties entering into the contract must mean the same thing in the same sense.  The parties to the contract must have the same understanding in regards to the subject matter of the contract.

Mere consent is not enough for a contract to be enforceable the consent given must be free and voluntary.  The definition of Free consent is provided under the Indian Contracts Act is Consent that is free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

Clearly, Free Consent means the absence of any kind of coercion, undue influence, fraud, misrepresentation or mistake. When the consent which is given is affected by these elements it calls into question whether the consent given was free and voluntary. The objective of this principle is to ensure that judgment of the parties while entering into the contract wasn’t clouded. Therefore consent given under coercion, undue influence, fraud, misrepresentation or mistake has the potential to invalidate the contract.  

Factors which invalidate consent

As stated above, consent given by a party must be absent of:

Coercion

According to the Indian Contracts Act, 1872, coercion is defined as:

“‘Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

A point to be remembered is that it is not necessary that the IPC is applicable at the place the consent was obtained. A very crucial part of the law is the phrase “to the prejudice of any person whatever” which means the coercion could be directed against the prejudice of any person and not just the party to the contract. It is also not necessary that only the party to the contract causes the coercion. Even a third party to the contract can cause coercion to obtain the consent, as was seen in the case of Ranganayakamma v. Alwar Sethi where a widow was coerced into adopting a boy by the boy’s parents by not allowing the corpse of the widow’s husband to be removed from the home until the adoption is made.

The burden of proof in cases of coercion lies on the party whose consent was coerced. When consent of a party was obtained through coercion, the contract becomes voidable at the option of the party whose consent was so obtained.

Undue Influence

When the parties to the contract are in relationships in such a way that one party can dominate the will of the other and uses the unfair advantage so gained to obtain the consent of the other party, then the consent is said to have been obtained by undue influence.  Now, the Contract Act 1872 also provides instances where a person can dominate the will of another. These instances are:

• Where a person has a real or apparent authority over the other.
• Where a person has a fiduciary relationship with the other.
• Where a person enters into a contract with another whose mental capacity is affected, either temporarily or permanently.

When a party who in a position to dominate the will of the other, enter into a contract and the contract prima facie appears to unconscionable, then it is the burden of the party who in a position to dominate, to prove that consent has not been obtained by undue influence.

When the consent of the party to the contract has been obtained through undue influence, then the contract becomes voidable at the option of the party whose consent has been so obtained.

Fraud

Consent is not said to be free when it has been obtained by means of fraud. In such cases, the contract becomes voidable at the option of the party whose consent was obtained by means of fraud. Moreover, fraud is also a tort where action for damages can lie. The Indian Contract Act, 1872 gives the definition of the term ‘Fraud’.  The law provides five acts which when committed either by the party or with his assistance or by his agent, with the intention to deceive the other party, amounts to fraud. Those acts are as follows:

• A suggestion, as to a fact which is false, by a party who believes it to be false.
• An active concealment of a fact by a party
• A promise made without any intention of fulfilling it.
• Any other act which can deceive.
• Any act or omission which the law specifically provides to be fraudulent.

Mere silence about facts which can affect the willingness of a person to enter into a contract does not amount to fraud, but if there is a duty to speak upon the person who is keeping silent, then it becomes a fraud.Example of such cases is Contracts Uberrima fides, also known as Contracts of Utmost good faith where full disclosure is expected.

The burden of proof in cases of fraud lies on the party who alleges it. The party has to prove the circumstances which can lead to the existence of fraud. Merely making a mention of fraud in the pleadings is not enough. If the party, whose consent has been obtained through fraud, had the opportunity or means to discover the truth with ordinary diligence, then the contract will not be void.

Misrepresentation

Misrepresentation under the Indian Contract Act, 1872 has an exhaustive definition and can be divided into 3 types.

• The first type is when a statement is made by a person, about a fact which is not true, though he believes it to be true.
• Second is the type when there is a breach of duty by a person who is making the false statement and he gains some kind of advantage even though it wasn’t his intention to deceive the other party.
• The third is the type where if one party acting innocently, causes the other party to make any mistake with regards to the subject matter of the agreement.

As can be seen from above, the three types of misrepresentation have one very important thing in common, the intention of the party which misrepresents is innocent; it is not to deceive the other party into entering the contract. The intention of the party who makes the false statement is the difference between misrepresentation and fraud.

The burden lies on the party claiming misrepresentation to avoid the contract to prove that misrepresentation was used to obtain the consent. When consent was obtained through misrepresentation, it becomes voidable at the option of the party whose consent was so obtained.

Mistake

When one of the parties has given its consent to the contract under some kind of misunderstanding then the consent is said to be have been given by mistake. If it wasn’t for the misunderstanding the party would not have entered into the agreement.  Under contract law, a mistake can of two kinds: 1) Mistake of Law and 2) Mistake of Fact.

Mistake of Law

When the party has any misunderstanding with regards to the legal provisions, it is called Mistake of Law. Now, the party can be confused regarding the law of the Homeland or law of a foreign land. If it is a mistake regarding the law of the homeland, the contract cannot be avoided. The party cannot take the plea of having no knowledge of laws of his homeland. But if it is a mistake regarding the law of a foreign country, he can be excused.

Mistake of Fact

When the parties have any misunderstanding regarding the subject matter or terms of the contract, it is said to be a Mistake of fact. The misunderstanding can be on the part of one party or both of them.

Bilateral Mistake – When both the parties are under any misunderstanding/mistake relating to a matter of fact essential to the agreement, the agreement becomes void.

Unilateral Mistake – When the misunderstanding/mistake is on the part of one party to the contract, the agreement remains valid.  Only when the party is mistaken about the parties to agreement or nature of the transaction, the agreement becomes void.

Conclusion

Free Consent is absolutely essential to make an agreement a valid contract. The importance of free consent cannot be stressed enough.  Consent of the parties to the contract must be free and voluntarily. Consent to the contract has to be given without any kind of pressure or delusions. It is important that the consent given by the parties is free as this can affect the validity of the contract. If the consent to the agreement was obtained or induced by coercion, undue influence, fraud, misrepresentation or mistake, then it has the potential to make the agreement void.