2. Proposal and acceptance: The first step towards creating a contract is that one person shall signify or make proposal or offer to the other, with a view to obtaining the acceptance of that another person to whom the offer is made. A proposal when accepted becomes a promise.
3. Consensus-ad-idem (meeting of minds): To constitute a valid contract, there must be meeting of minds i.e. consensus-ad-idem. The parties should agree to the same thing in the same sense and at the same time.
4. Intention to create legal relationship: When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts.
5. Consideration: Consideration is the most important element of contract. Consideration has been defined as the price paid by one party for the promise of the other. Consideration means “something in return” (quid pro quo). A promise is often made in return for a promise, e.g. a buyer realizes the goods for the price. Therefore price for goods is consideration. The promise for a promise in return is Consideration.
6. An agreement is a contract only if it is made for a lawful consideration and with a lawful object. The consideration or object of an agreement is unlawful if-
12. Every agreement of which the object or consideration is unlawful is void. (Section 23)
13. Capacity of parties (competence): The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she,
17. Free consent: To constitute a valid contract the parties must give their free and genuine consent. 'Consent' means that the parties must have agreed upon the same thing in the same sense (sec. 13). Mere consent is not enough. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake. If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20)
18. Lawful object: For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law.
19. Writing and registration: A contract may be oral or in writing. If, however, the law requires for a particular contract, it should comply with all the legal formalities as to writing, registration and attestation.
20. Certainty: Section 29 of the contract Act provides that "Agreements, the meaning of which is not certain or capable of being made certain, are void." The terms of contract should be clear. In other words the contract must be not vague. Contracts which are vague cannot be enforced. Such a contract can be avoided by showing that there is ambiguity. In such a case there is nothing which either party can enforce. Illustration. A, agrees to sell B "a hundred ton of oil" there is nothing whatever to show what kind of oil was intended. The agreement is void because of uncertainty.
21. Possibility of performance: Contracts based on impossibility of performance are not valid. Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law. Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable.
22.
23. A village moneylender (A) lends money to a villager (B), who is already in debt, at a very high interest. It lies on A to prove that he has not used undue influence to induce the contract.
29. Illustration: A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of agreement, but both the parties were ignorant of the fact. The agreement is void.
30. Unilateral mistake: A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact (sec.22). In Unilateral mistake, only one party is under a mistake as to a matter of fact. The agreement is not rendered void.
39. A promises to obtain for B an employment in the public service, and B promises to Pay Rs. 1000/- to A. The agreement is void as the consideration for it is unlawful.
40.
41. An agreement buy the debtor not to rise the plea of limitation, should a suit have to be filed,is void as tending to limit the provisions of the Limitation Act (Rama Murthy vs Gopayya).
42.
43. A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code.
44. A gift deed executed in consideration of illicit has been held void, as its object is immoral. (Ghumma v. Ram Chandra)
45.
46. A, who is B’s mukhtar, promises to exercise his influence, as such with B in favor of C and C promises to pay Rs.1000 to A. The agreement is void because it is immoral.
63. An agreement which limits the time within which one may enforce his contractRights, without to the time allowed by the limitation act.IllustrationIn a contract of fire insurance, it was provided that if a claim is rejected and a suit is not filed within three months after such rejection, all benefits under the policy shell be forfeited. The provision was held valid and binding and the suit filed after three months was dismissed. (Baroda spinning Ltd. vs. Satyanarayan Marine and Fire Ins. Com. Ltd.)<br />Exception 1: This section shell not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shell be referred to arbitration and that only the amount awarded in such arbitration shell be recoverable in respect of the dispute so referred.<br />Exception 2: Nor shell this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.<br />CONTRACT IN RESTRAINT OF TRADE<br />The constitution of India guarantees that the freedom of trade and commerce to every citizen and therefore section 27 declares “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Thus no person is at livery to deprive himself of the fruit of his labor, skill or talent, by any contracts that he enters into.<br />It is to be noted that whether restraint is responsible or not, if it is in the nature of restraint of trade, the agreement is void always, subject to certain exceptions provided for statutorily.<br />IllustrationAn agreement whereby one of the parties agrees to close his business in consideration of the promise by the other party to pay a certain some of money , is void, being an agreement is restraint of trade, and the amount is not recoverable, if the other party fails to pay the promised some of money. (Mad hub Chander vs. Raj Kumar).<br />But agreements merely restraining freedom of action necessary for the carrying on of business are not void, for the law does not intend to take away the right of a trade to regulate his business according to his own discretion and choice.<br />AGREEMENT BY WAY OF WAGER<br />Literally the word ‘wager’ means ‘a bet’ something stated to be lost or won on the result of a doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting agreements. <br />Example, A and B mutually agree that if it rains today A will pay B Tk.100 and if it does not rain B will pay A Tk.100 or C and D entered into agreement that on tossing up a coin, if it fall head upwards C will pay D Tk.50 and if falls tail upwards D will pay C Tk.50, there is a wagering agreement.<br />In Tracker vs. Hardy Cotton, L.J., described a ‘wager’ ad follows: “The essence of gaming and wagering is that one party is to win and the other to lose upon a future event which at the time of the contract is of an uncertain nature- that is to say, if the event turns out the other way he will win.” <br />Agreement by way of wager, void - Section 30 lays down that “agreements by way of wager are void; and no suit shell 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,” Thus, where A and B enter into an agreement which provides that if England’s cricket team wins the match, A will pay B Rs. 100, and if it loses B will pay Rs. 100 to A, nothing can be recovered by the winning party under the agreement, it being a wager. Similarly, whether C and D enter into a wagering agreement and each deposits Rs.100 with Z instructing him to pay or give the total sum to the winner, no suit can be brought by the winner for recovering the bet amount from Z, the stake-holder. Further, if Z had paid the sum to the winner, the looser cannot bring a suit, for recovering his Rs.100, either against the winner or against, the stake-holder, even if Z had paid after the loser’s definite instructions not to pay. Of course the looser can recover back his deposit if he makes the demand before the stake-holder had paid it over to the winner (Ratnakalli vs. Vochalapu). But even such a deposit cannot be recovered by a loser in the States of Maharashtra and Gujarat where such an agreement is void and illegal.<br />Exceptions<br />Horse Race - This section does not render void a subscription or contribution, or an agreement to subscribe or contribute, toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards to the winner or winners of any horse race.<br />Crossword competitions and lottery - The supreme court of India in B.R Enterprises V. State of U.P. held that even the state sponsored lotteries have the same element of chance with no skill involved in it and it comes under wagering contracts as the very nature of agreement has not changed and thus be void. If chance does not play a role and victory is completely dependent on skill, the competition is not a lottery .Otherwise it is. The Madhya Pradesh High Court in Subhash Kumar Manwani v. State of MP has characterized lotteries as wager and the court held that agreement for payment of prize money on a lottery ticket was held to be coming within the category of wagering agreement as contemplated by section 30.<br />The principle and purpose behind Sec. 30 to treat an agreement by way of wager as void is that, the law discourages people to enter into games of chance and make earning of trying luck instead of spending their time, energy and labour for more fruitful and useful work for themselves, their family and society. <br />CONTINGENT CONTRACT<br />Section 31 of the Act defines Contingent contract as “A contract to do or not to do something if some event, collateral to such contract, does or does not happen”. In simple words, it may define as a conditional contract.<br />Illustrations:<br />‘A’ contracts to pay B Rs 10,000, if B’s house is burnt. This is a contingent contract. Here the liability of A arises, only when a particular event takes place, i.e. burning of B’s house. This is an event, collateral to the main contract.<br />Essentials of contingent contract<br />The performance of a contingent contract is made dependent upon the happening or non-happening of some event.<br />The event on which the performance is made to depend, is an event collateral to the contract, i.e., it does not form part of the reciprocal promises which constitute the contract.<br />Examples<br />A agrees to deliver 100 bags of wheat and B agrees to pay the price only afterwards, the contract is a conditional contract and not contingent, because the event on which B’s obligation is made to depend is a part of the promise itself and not a collateral event.<br />A promises to pay B Rs. 10,000 if he marries C, it is not a contingent contract.<br />The contingent event should not be the mere will of the promisor.<br />Example: A promises to pay B Rs. 1,000, if he so chooses, it is not a contingent contract.<br />However, where the event is within the promisor’s will but not merely his will, it may be a contingent contract.<br />Example, A promises to pay B Rs. 1,000, if A left Delhi for Bombay, it is a contingent contract, because going to Bombay is an event no doubt within A’s will, but is not merely his will.<br />Rules Regarding Enforcement of Contingent Contracts (Sections 32 to 36)<br />The rules regarding contingent contracts are summarised hereunder:<br />Contracts contingent upon the happening of a future uncertain event, cannot be enforced by law unless and until that event has happened. And if, the event becomes impossible such contract become void (Section 32).<br />Examples<br />A makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced by law unless and until C dies in A’s life-time.<br />A makes a contract with B to sell a horse to B at a specified price if C, to whom the horse has been offered, refuses to buy him. The contract cannot he enforced by law unless and until C refuses to buy the horse.<br />A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.<br />Contracts contingent upon the non-happening of an uncertain future event can be enforced when the happening of that event becomes impossible, and not before. (Section 33).<br />Example, A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.<br />If a contract is contingent upon as to how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything, which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. (Section 34).<br />Example, A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and C may afterwards marry B.<br />Contracts contingent upon the happening of a specified uncertain event within a fixed time become void if, at the expiration of the time fixed, such event has not happened or if, before the time fixed, such event becomes impossible (Section 35 para 1).<br />Example, A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.<br />Contracts contingent upon the non-happening of a specified event within a fixed time may be enforced by law when the time fixed has expired and such event has not happened, or, before the time fixed expired, if it becomes certain that such event will not happen (Section 35 para II).<br />Example, A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.<br />Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.<br />Examples<br />A agrees to pay B Rs. 1,000 if two parallel straight lines should enclose a space. The agreement is void.<br />A agrees to pay B Rs. 1,000 if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.<br />Difference /Distinguished between Contingent contract and wagering agreement<br /> Contingent contractWagering agreementThe contract need not contain any mutual promisesThe contract is bound by mutual or reciprocal promisesAll contingent contracts are not necessarily wager contractsAll wager contracts are contingent contractsThe uncertain event may be within the power of one of the partiesIn a wager, the uncertain event is beyond the power of both the partiesIn a contingent contract, the parties are interested in the occurrence of the event.The parties are not interested in the occurrence of the event., apart from the money earned or lostThe future event is merely collateral or incidentalThe future event is the sole determining factor of the contractContingent contract is not void unless it is dependent on the occurrence of an impossible eventWagers are void<br />