Contracts are an integrated part of our lives. Almost everyone is a party to at least one contract everyday. From marital contracts to employment contracts, Every single aspect of life is connected with contracts but not every contract is violence to make it a valid contract is a Valid on. To make it a valid contract; there are certain essentials that need to be fulfilled. Else, the contract will be considered as void contract or voidable contract. So, before entering into a contract, one must be aware of such requisites.
It means nothing but lawful agreement. As per sub-section ‘h' of section 2 of the Indian Contract Act 1872,an agreement enforceable by law is a contract.
You must be wondering:
1) What exactly an agreement is ?
Sub-section ‘c' of section 2 of ICA, 1872 defines agreement as ‘every promise and every set of promises, forming the consideration for each other.’ There are many essentials to constitute an agreement like-
- Parties – Person, Group of persons, organization or corporation etc, which participated in an agreement or who are willing to participate. There must be atleast 2 parties to enter into an agreement.
- Offers (2a) – Whenever a party shows his wish to either do something or defer for doing something in a view of getting other party’s approval.
- Acceptance (2b) – When an offer is made to a party and the same party gives its approval to do the exact same thing as was offered.
- Promise (2c) – The moment when an acceptance is made. It becomes a promise .
- Consideration (2d) – It is found in the legal maxim 'QUID PRO QUO’ which means something in return. Nothing according to ICA, 1872, must be done for free or without getting anything in return. No Consideration simply means No Contract. In order to avoid future disputes, something needs to be provided as reward to the one who did his role or fulfilled his obligation. So, it is a price given for the promise already made. Though, Quantum isn’t decided as such, It may seem strange but a single penny paid will also be counted as a valid consideration. Consideration is moved as per the wish and desire of the promisor.
With the help of Currie versus Misa case, legal definition of Consideration was derived. As per the case, it is some profit, loss, responsible of likewise.
Types of consideration
Past Consideration- Consideration given for the acts done in past which means paying for the benefits taken already in the past.
For example- Ram is father of Shyam, who went to his offices. Meanwhile, Ram suffered a cardiac arrest. He was taken to the hospital through an ambulance where Doctors conducted an emergency operation and saved him. Shyam got to know about the whole incident in the evening when he came back to his house. He went to hospital and paid a sum of 1 Lakh INR. Here, price paid amounts to past consideration.
Present Consideration- Paying the price exactly when the work is done.
For example- A made a cake for B and charged ₹300 for the same. B paid the money. Here, price paid amounts to present consideration. It is also called as Executed Consideration.
Future Consideration- Paying already for the work to be executed in future.
For example- Anuj ordered a shirt from Slipkart worth 800 INR. He made a payment through his debit card already. The Shirt will arrive after 10 days of the order. Here, price paid will amount to future consideration. It is called as Executory Consideration.
2) What is the meaning of enforceable by law?
Enforceable by law means that if a party ditched the other party or breached the contract, then the aggrieved one can approach the court for remedies, for the compensation of damage suffered by the aggrieved by the act of another one.
3) How it can be legally enforced?
Contract is enforceable by law, when there is:
1) Free consent – To amount to a valid contract the parties must have entered the contract without coercion (section 15), under influence (section 16), fraud (section 17), misrepresentation (section 18) and mistake (section 20, 21, 22). Consent given without any of these discrepancies will be considered free consent and Hence, will be legally enforceable.
2) Capacity- Parties should be legally capable to enter into a contract. As such, there are 3 main essentials to be fulfilled to gain the capacity to enter a contract.
A) Must have attained majority( 18 or above)
B) Should be of sound mind, in order to know the facts and circumstances and consequences of entering a Contract.
C) Not disqualified by law- It includes citizens of Enemy country, foreign sovereigns and ambassadors, Insolvents etc.
4. Lawful object and lawful consideration- It means that neither object nor consideration should be against any legal provisions. Contracts made of a lawful object will be considered as a valid contract whereas those consisting of an unlawful object, will be declared as void ab initio. It should not involve injury to health of a person, injury to body of a person, injury to property of a person, violation of safety norms, peace, morality etc.
Types of Contract
There are basically three kinds of contract :-
Valid contract- The contracts made by sticking to all the requisites of an agreement. Thus, making it legally enforceable is called a valid contract.
Void contract- The contracts which are have no enforceability and is illegal from beginning because of certain discrepancies, is called a void contract.
Voidable contract- Those contracts which were valid in the beginning but is now capable to be terminated at the option of one party is called a voidable contract.
Section 2f of the Indian Contract Act 1872 defines reciprocal promises as a form of the consideration. It generally means promise in exchange of promise. So, it is merely exchange of promises.
For example- Deepak bought 10 kilograms of rice from a grocery shop. Instead of paying the full amount, he promises the seller to pay the due as soon as possible. The seller in return promises him that if Deepak paid the left amount within 2 days then seller will give him 2 kilograms of wheat flour for free.
This is a reciprocal promise.
Case- M/S Shanti Builders vs. CIBA Industrial workers, Cooperative Housing Society Ltd.
In this case, the complainant was promised some portion of land for construction of building but was not given the same. The Court held that respondent cannot make the complainant liable for not fulfilling the obligation of a contract.
Even if work was not done builders cannot be held liable because they were ready to perform their part but it was the respondent who was not. So, complainant was entitled to remedies by the Court.
Types of Reciprocal Promise
1.Mutual and Independent
In this type of Reciprocal Promise, promises are not dependent on each other. They are mutual but are independent at the same time.
For example- Aman promised to give 5 Mango Bite candies to Naman and Naman promised to give 5 Hajmolas to Aman.
Both the promises are independent in nature.
In this type of Reciprocal Promise, Promise made by one party is dependent on the fulfilment of the promise by another party.
For example- A and B entered into a contract in which A paid full amount to B for making furniture out of wood. A promised him to give wood for the same but A didn't. When A did not do his part then how will be start making the furniture?
So, B cannot be held liable for not doing the act promised.
In this type of reciprocal promise promises are made simultaneously for example
Rekha is an apple seller. Bacchan purchases some apples from her. Rekha asks for 90% of payment for the apples.
Simultaneously, if Bacchan denies then Rekha can break the same contract as well.
Section 51, ICA 1872- Promisor not bound to perform unless reciprocal promisee ready and willing to perform
It covers promises made under Concurrent Reciprocal Promise i.e. promises made simultaneously.
For example- Tom delivered a product ordered by Bheem at his home. As per the Contract, Bheem needed to pay 90% of the payment. If Bheem denied then even Tom doesn’t need to deliver the product as well.
Section 52,ICA 1872- order of performance of reciprocal promises
Major problem with reciprocal promise which create huge disputes is that who will perform his part first?
This section States if order is expressly fixed in the contract then it need to be performed within the period only. If it is not fixed then, it should be performed in the nature that transaction requires.
Section 53, ICA 1872- liability of party preventing event
Case- Ramchandra Narayan Nayak v. Karnataka Nerraari Nigam Ltd. , 2013 15 SCC 140
In this case both complainant and respondent entered into a contract for which cement is to be provided by department. Party tried of preventing this event.
The court held that Aggrieved party can break the contract full stop contract will become voidable at the option of the aggrieved party and then the aggrieved party will also be entitled the compensation from other party
Section 54,ICA 1872- effect of default as to that promise which should be first performed
This legal provision is based on the conditional reciprocal promise.
For example Alia promised Deepika that when she will come to her home, if Deepika gives her college notes to Alia then she will pay 4000 INR to Deepika for the same. If Alia didn’t go to her place, She cannot ask Deepika for any sort of relief or remedies.
Sec. 54 provides that Promisor cannot claim the performance of Reciprocal Promise from the other party. In addition, Promisor must give compensation for the loss, if incurred.
Section 55, ICA 1872- If party failed to perform in the stipulated time
In such case it is voidable at the option of the promisee and the promisee can ask for compensation for losses.
Section 56,ICA 1872-Impossible Acts
If the promisee has promised to do something that is impossible in nature or which is an unlawful act then such contract will be declared void in nature and this is called as the doctrine of frustration.
Section 57,ICA 1872- Reciprocal promises of legal and illegal acts.
If parties have entered a contract to do something consecutively and the events include a lawful act and unlawful act then the contract with lawful act will be treated as a valid contract and the latter one will be declared as void.
Section 58,ICA 1872- Reciprocal promise in which a branch of the promise is illegal
For Instance- A promised B to pay 1 lakh rupees for a motor vehicle. B promise to give him a brand new motor vehicle, be it a purchased one or a stolen one.
In this scenario, it will be legal in the former case and illegal in the latter case.
About the Case
Deddappa v. Branch Manager of National Insurance Company
As per the case, Shantamma, daughter of the appellant was killed by a truck driver in an accident. The appellant asked for the grant of consideration from the truck driver as compensation under Section 166 of Motor Vehicles Act, 1988. The truck driver went to the National Insurance Company to compensate the appellant for the same. But they didn't because the cheque given by the Truck driver was bounced. So, because of the dishonour of cheque, the policy of the same of cancelled. Later, The court granted a total sum of ₹1,58, 000 @ 12% p. a. to be paid by the truck driver to the appellant. Truck driver claimed that despite of the cancellation of the contract of insurance, the National Insurance Company is liable to compensate.
In this case, certain major cases were referred including Oriental Insurance Company Ltd. v. Inderjeet Kaur and Ors., in which it was held that the Insurance Company is liable to compensate for the losses occurred due to the accident by bus. The other case being referred was National Insurance Company Ltd. v. Seema Malhotra & Ors.
Lastly, the court held that truck driver is liable to pay the amount to the appellant.
It is very evident that Consideration and Reciprocal promise, which is also a form of consideration plays a vital role in Contract. It isn’t merely an essential but is the would of any contract. Consideration act as a benefit or reward. It motivates the other party to give its best to the other party in order to attract a benefit. Hence, it’s a salient feature of valid contract.
BBALLB - 4th semester