ANALYSIS ON FREE CONSENT &VALIDITY OF CONTRACT IN INDIA
Author: Spandana Reddy Bommu, II Year of B.B.A.,LL.B from Symbiosis Law School, Hyderabad.
To become a contract recognized and enforceable by law, an agreement must fulfil certain conditions in the 'Indian Contract Act, 1872'. Consent is one of the fundamental components of a contract. The law states that "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 not hereby expressly declared to be void." The two essentials requirement of any contract in respect of the element of 'consent' are-
The law states that unless the parties understand each other and the subject matter of the Contract, the Contract is legally invalid. "Consensus-ad-idem" in English Law says when two parties enter into a contract, the parties should consent to the same thing in the same sense, and there must not be any misunderstanding between the parties about the subject matter of the contract. On the other hand, free consent is another ingredient which implies the party accepting an offer is entering into a contract without any pressure or delusions. The party's consent must be free, which may affect the contract's validity. If the consent has been obtained or caused by coercion, undue influence, fraud, misrepresentation, or mistake, the aggrieved person has the right to void the agreement. It can be stated that the law governing contracts entered into between persons in India comprises both Indian law (i.e., the Indian Contract Act, 1872) and the general principles of law that are established and accepted in the United Kingdom, also called the 'English law' or 'Common Law'.
The current research topic demands doctrinal research to analyze better the essential elements of a valid contract, which is the crux of the current subject. The analysis of numerous definitions of free consent proposed by various jurists as a fundamental component of a contract and the analysis of judicial precedents applicable to the current context allows the researchers to pay attention to their intricate terms and descriptions. As the word contract derives from English law, the statutory provisions include not only Indian cases but also English cases. The reference to the same will help to understand the general assessment of the scope contract.
Contracts are precisely what their commonsense meaning implies. They are agreements(deals/bargains) between two or more persons to achieve a particular purpose, specifying the rights and duties between each other. The law governing contracts between persons in India comprises Indian law (i.e., the Indian Contract Act, 1872) and the general principles of law that are established and accepted in the United Kingdom, also called the 'English law' or 'Common Law'.
A contract defined under Section-2(h) of The Contract Act, 1872(hereinafter referred to as "the act") means "any agreement which is enforceable by law". Contracts can be written by using formal or informal terms or could be entirely verbal or spoken.
According to Salmond, "A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more acts or forbearance on the part of others".
There are certain elements that, when fulfilled, would constitute a valid contract, and contrary to that, it would be considered null and void depending on the circumstances. Section-10 of "the act" enumerates certain conditions that must be fulfilled to constitute a valid contract.
In Indian Contract Law, there are three contracts:
In this, a valid contract is an agreement enforceable by the law. A void contract is an agreement that is not enforceable by the law. There is a voidable contract between a valid and a void contract. A voidable contract is a contract that is recognized by the Indian Contract Act and is valid at the option of the aggrieved party to the contract. The voidable contract arises due to the flaw in consent.
Analysis of the essential elements for a valid contract
OFFER AND ACCEPTANCE
A lawful offer and acceptance must be formed to form a contract. The term 'lawful' means that, concerning this, the offer and acceptance must meet the requirements of the contract act. The offeror proposal is defined under section 2 (a) of the Contract Act. Section 2 (b) of the Act provides that when an offer is accepted, it becomes a promise. Mere knowledge of the contract does not constitute acceptance, and it must be expressed as was held in the case of "Lalman Shukla v. Gauri Dutt".
INTENTION OF CREATING A LEGAL RELATIONSHIP
There must be a clear intention among the parties that the agreement should be attached by legal consequences and create a legal obligation. What these means are those arrangements that are not enforceable by law, e.g., social or domestic agreements between spouses or friends, which cannot be enforced in a court of law and would not constitute a contract. Legal relationship will be implied when failure of a said act mentioned in the contract would result in legal consequences.
In Currie v. Misa, Justice Lush defined consideration, A valuable consideration in the sense of law that may consist either in some Rights, Interest, Profit or Benefit accruing to one party or some forbearance detriment, loss or responsibility is given, suffered or undertaken by the other. Consideration means 'something in return, which means that the parties have to accrue in some form, whether it be profit, rights, interest, etc. or agree to have some form of beneficial 'consideration'.
Section-25 states that any contract without consideration is void as it is the essence of a contract. However, under section 23, specific considerations would be unlawful as:
They are forbidden by law.
It is of such a nature that, if permitted, it would defeat the provisions of any law or is fraudulent.
It involves or implies injury to the person or property of another.
The Court regards it as immoral or opposed to public policy.
If even one of these conditions is fulfilled, it will further render the agreement illegal.
PARTIES MUST BE COMPETENT TO CONTRACT
To constitute a contract, the parties engaging in the same must be competent. Section 11 of "the act" states the criteria of parties who are competent to contract:
The parties must attain the age of majority, i.e., 18 years. An agreement with a person who is a minor will be considered void ab initio ("Mohri Bibi v Dharmodas Ghose, 1903").
The person must be of sound mind, i.e., not an insane person.
He/she should be disqualified from the law to engage in a contract.
FREE CONSENT BY THE PARTIES
This implies that parties entering a contract shall enter with their free will, and any external factors should not influence their decision to engage. Section-14 of "the act" deals with free consent and provides certain factors if so found, would deem a contract invalid.
Further, for a contract to be valid in the eyes of the law, it shouldn't be expressly declared void, for example, agreement without consideration (Section-25), agreement in restraint of marriage (Section-26), agreement in restraint of trade (Section-27), agreements in restraint judicial proceedings (Section-28), an agreement by way wager (Section-30), etc.
No Consent = No Contract. According to Section 14 of the Indian Contract Act, consent is an aid to be free when it is not said to be caused by:
Coercion – Section 15
Undue Influence – Section 16
Fraud – Section 17
Misrepresentation – Section 18
Mistake – Section 20, 21& 22
The contract is void if the consent is not free and the following elements cause it. But if it is caused by a Mistake, then the contract is void. In this case, the affected party has the right to avoid the contract.
"Contractual Agreement Arising Out of Coercion"
Section 15 of the Indian Contract Act deals with Coercion. In Indian law, coercion actually means committing or threatening to commit any act forbidden by law. Thus, when a person's consent to an agreement is obtained by exercising pressure on that person either by committing or threatening to commit an act forbidden by law, the consent is vitiated by coercion.
It may include violence or the threat of violence to any person or his/her property. The threat of a lawful prosecution, i.e., prosecution for an act committed by the person being threatened, does not fall within coercion since it is not a forbidden act within the IPC. Only a threat to institute a false prosecution is forbidden.
(i) Coercion may move & direct towards anyone: The coercion may move from one person to another other than the contracting party. It may even move to the close relations of the contracting party.
E.g., A kidnaps B's son to obtain B's consent to the contract. Even though B's son is not a party to the contract, the coercion has moved to him.
Not only that but also Coercion may be directed toward any person. In this case, the coercion doesn't need always to be performed by the parties to contract; sometimes, it can also be exercised by a third party to contract.
E.g., A hired B to kidnap C's son to get consent from C to contract.
(ii) Effects of coercion: When coercion is employed, the contract is voidable at the option of the aggrieved party. In this case, any benefit received by either party to the contract must be restored. If the aggrieved party has suffered a loss, he can recover the loss from the other party to contract.
(iii)Duress vs Coercion: Duress is a term applied under English Contract Law & Coercion is a term applied under Indian Contract Law. In coercion, even a third party can perform the act, but in duress, only the party to a contract should perform the act. In Duress, it only applies to the person and cannot detain property. Therefore, the scope of coercion is broader than duress.
"Contractual Agreement Arising Out of Undue Influence".
Section 16 of the Indian Contract Act defines Undue Influence. It includes the less direct pressure a person can exert to achieve a particular end. This type of influence can even exist within a parental relationship, where the relationship between the parties is such that one can naturally exert an influence over another. Exerting influence over another becomes "undue" only when it is unfairly exerted to achieve a specific result, like the execution of a particular agreement. In this, the party is in a position to dominate the will of others-
(1) When he holds real/apparent authority
(2) If he stands in fiduciary relations
(3) If he makes a Contract with a mentally distressed person.
(a) Real or apparent authority: When a person has real or apparent authority over another, the law assumes that such a person will be in a position to dominate the will of the person over whom s/he holds such authority. These relationships of domination may include the relationship between a person and his/her spiritual adviser, between a police officer and a person in her/his lockup, and even between an income tax officer and a taxpayer.
(b) Fiduciary Relationship: When two persons are in a fiduciary relationship, it is assumed that one person is in a position to dominate the will of the other. A fiduciary relationship is one where a person places confidence in or trusts another, whatever the basis or origin of this feeling. It may include the relationship between a doctor and patient, a lawyer and a client, a parent and child, or between a guardian and child.
(c) Contract with a person who is mentally in distress: It deals with those cases where a contract is made with a person, taking advantage of her/his mental incapacity, caused for whatever reason. The consent to enter into such a contract will also be deemed to have been obtained by exercising undue influence, and it falls under agreement arising out of undue influence.
"Contractual Agreement Arising Out of Fraud, Mistake and Misrepresentation."
Fraud-Section 17: Fraud is nothing but intentional or willful misrepresentation of a material fact which is essential to the contract. Suppose there is an intention to deceive the other party by knowing it is not a fact. If the promise is made without an intention of performing it, this also amounts to fraud. Such agreements arising out of fraud are voidable contracts at the option of the aggrieved party.
Misrepresentation-Section 18: Misrepresentation means and includes ---
(i)the positive assertion, in a manner not warranted by the information of the person making the statement, of that which is not valid, though he believes it to be accurate;
(ii)any breach of duty which, without any intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice, or the prejudice of any claiming under him;
(iii) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
Mistake-Section 20, 21& 22: A mistake defined under section 20, 21, & 22 could either imply no consensus between the parties or a genuine agreement with a mistake as to specific facts in the contract. Mistakes render the contract non-existent because of the absence of consensus ad idem between the parties. These types of mistakes include:
There is an apparent agreement between the parties but no actual concurrence between the terms of offer and acceptance.
The person to whom the offer is addressed makes a mistake regarding the actual nature of that promise which the offeror makes, and the offeror is aware of the mistake.
There is a mistake regarding the identity of the person with whom the contract is being entered into, and the party is aware of the others' mistake.
Mistake as to a document: "When a person signs a document under the honest belief that it is what she/he wished and intended to sign when it is something else, i.e., it is essentially different from the deed that she/he intended to sign.
The researcher would like to conclude that an agreement between private parties creates mutual obligations enforceable by law. The fundamental elements required for the agreement to be a legally enforceable contract are mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality. It could be deciphered that the principles mentioned above are the elements that affect the consent of the contract. If there is no consent, then there is no contract. And the consent given by the party to the contract rather than the stranger is also essential for the contract's validity. The researcher is of the view that the jurist, in numerous cases, explained the meanings and definitions of contracts and the elements that fall under the purview of it with much appreciable intricacy. Contract law being dependent on judicial precedents, the verdict in BALFOUR V. BALFOUR and many other landmark judgments are of great value to the judiciary. The researcher considered all possible meanings of contract and free consent and consolidated them in the paper's analysis. This adds to the healthy evolution of contract law in India, and its progress is in the right direction.