1.It should be the result of free consent of the parties to the agreement;
2. Parties to the agreement should be competent to contract;
3. The agreement should be based on lawful consideration for the parties;
4. The agreement should be for a lawful object; and,
5. The agreement should not have been expressly declared void by the Contract Act.
In addition to the above, certain other conditions need to be met before an agreement turns into a legally enforceable contract. These conditions are:
a) The agreement should be possible to perform; and,
b) it should be written in a language that does not lend itself to ambiguity. The meanings of the agreement should be clear.
A contract, under the law, can either be written or verbal except where the law requires it to be in writing. For example, contracts of sale, mortgage, lease or gift of immovable property are required to be in writing (and to be registered under the Transfer of Property Act, wherever applicable).
We now propose to discuss each of the above conditions in some detail and to show how they play out in real life.
Free Consent: Essentials of free consent are: i) That it should not have been obtained through coercion; ii) that it should not have been obtained through undue influence; iii) that it should not have been obtained through misrepresentation; iv) that it should not have been obtained through fraud; and,
v) that it should not have been given as a result of a mistake.
We shall now show, with the help of examples, the kind of circumstances that would militate against each of the above conditions listed above.
COERCION
Example: A threatens B with serious bodily injury unless B agrees to give Rs 50,000 to A. B agrees to do so and even gives a note to A promising payment of Rs50, 000 at a future date, as return of a loan taken previously from A. If B can prove later in a court of law that he was actually under threat of bodily injury from A at the time that he gave his note to A, no legal obligation will attach to B to make good on his promise. B's consent having been obtained through coercion the promise made by him has no value in law and has not created any legal relationship between the parties.
UNDUE INFLUENCE
Similarly, consent obtained through the exercise of undue influence is no consent in law.
Example: A is the employer of B and has the authority to fire him. A insists that B sell his car to A for a price below the market price. B agrees to do so. If B can later prove that he agreed to sell his car to A on the terms and price offered by A, only because B feared for his job, there would be no legal obligation on the part of B to sell his car to A, as no legal agreement has been created between them.
MISREPRESENTATION
Another situation that vitiates an agreement is where consent of a party is obtained through misrepresentation by the other party.
Example: A tells B that A's factory produces 200 tons of steel every day, and that A is willing to sell his factory to B for a certain price. B accepts A's offer and the parties sign the contract. Before, however, money changes hands, B discovers that the factory produces only 130 tons a day. B refuses to go through with the transaction. A sues B for breach of contract. B is able to prove A's perfidy (his misrepresentation as to the actual production capacity of his factory) in the court. Law will find for B. It will not hold B to any legal obligation to buy A's factory on the price and terms previously agreed upon.
FRAUD
Any consent obtained through fraud cannot lead to a valid agreement under the law. There can be no contract based on the consent of a party that has come through a fraudulent act on the part of the other party.
Example: A offers to sell his house to B for a sum of Rs 4 million. B asks to see A's property documents. A shows forged property documents to B. The property, in fact, does not belong to A. Not knowing this, B agrees to buy A's house. Subsequently, B discovers the fraud perpetrated by A. B refuses to go through with the agreement. Law will absolve B of all obligations under the agreement because, based on a fraud, it has no existence in law.
MISTAKE
It is essential for a valid agreement that both the parties to the agreement should agree to the same thing in the same sense and meaning. If the two parties have given their consent in error, there is no agreement.
Capacity of parties: The next essential condition for a legally enforceable agreement is that the parties to the agreement must be competent to contract. What it means in legal terms is that parties entering an agreement must be of the age of majority, must be of sound mind and must not be disqualified under any law from entering into a contract. Let us examine these sub conditions in a little more detail.
AGE OF MAJORITY
A person does not attain the age of majority until he is eighteen years of age. Any one below this age is a minor according to the Majority Act of 1875. In certain cases, however, a minor will not legally attain the age of majority till he is 21 years of age. Such cases are where a guardian of a minor's person or property has been appointed under the Guardian and Wards Act or the court of wards has taken charge of a minor's property.
A contractual arrangement with a minor is void ab-initio (from the beginning). The reason is that law considers a minor to be without the capacity to judge what is in his best interest and what is not. In an agreement where one party is a minor, no obligation under the agreement can be enforced against the minor because the law does not, as a rule, recognise the validity of an agreement with a minor. For this reason, if a minor has received a benefit under an agreement (which he can under the law) he cannot be compelled to return it.
A minor enters into an agreement with another party and promises that he will ratify the agreement when he reaches the age of majority and fulfil his obligations under the agreement. On attaining the age of majority he refuses to do so. Nothing can be done about it legally. The law will not recognise the existence of an agreement made during the period of minority.
For the same reason, even the principle of estoppel does not apply to agreements with minors. The principle of estoppel is that if a person makes another person believe something to be true and the other person, on the basis of that belief, acts or omits to act in a certain way, the first person will not be legally allowed later to go back on his word. But the minor can! Supposing a minor makes another person believe, on false pretences, that he (the minor) is an adult. On this understanding the two enter into an agreement. The minor takes his benefit under the agreement but does not fulfil his side of the bargain. On being sued he pleads minority of age at the time of the agreement and proves it. He will normally get away with the benefit he has already taken. It will be just tough luck for the other party. Law will not come to his rescue. Only in exceptional circumstances where the minor himself has brought a suit against the other party and the benefit can still be traced to the possession of the minor, the court may compel the minor to return the benefit.
(TO BE CONTINUED)
(The first part of this article appeared on July 28, 2004)