The term ‘contract’ is defined in Section 2(h) of The Indian Contract Act as “an agreement enforceable by law“. An agreement must meet certain criteria in order to be enforceable by law and qualify as ‘contract’. These criteria is set out in Section 10 of The Indian Contract Act. These are –
- Free consent of the parties;
- Competence of the parties to a contract;
- Lawful Object and lawful consideration;
- Not expressly declared void by law
1. FREE CONSENT
What is ‘Consent’?
As per Section 13 of The Indian Contract Act, ‘consent’ means when the parties agree upon the same thing in the same sense, i.e. consensus ad idem (meeting of minds). A contract can be rendered void ab initio if there is a lack of consensus.
If parties to a contract are under a mistake as to a matter of fact essential to the agreement, there is no meeting of minds and hence the contract is void.
What is Free Consent?
A ‘consent’ is considered to be ‘free’ when not caused by-
- Undue Influence
- Mistake (subject to ss. 20-22)
What is the difference between ‘misrepresentation’ and ‘fraud’?
In ‘misrepresentation’, party making it, believes it to be true without an intent to deceive and such contracts are voidable at the option of the other party. However, in ‘fraud’, there is always an intent to deceive the other party.
Consensus ad Idem:
- Raffles v Wichelhaus  EWHC Exch J19 [Summary]
- Derry v. Peek (1889) LR 14 App Cas 337 [Summary]
- Esso Petroleum Co. Ltd. v. Mardon  QB 801 [Summary]
- Shogun Finance Ltd v. Hudson  1 All ER 215 [Summary]
- Lingo Bhimrao Naik v. Dattatrya Shripad Jamadagni (1937) 39 BOM LR 1233 [Summary]
- Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib and Ors. 1967 SCR (1) 331 [Summary]
- Mohanlal Jagannath v. Kashiram Gokul AIR 1950 Nag 71 (74) [Summary]
- Bansraj Das v. Secretary of State AIR 1939 All 373 [Full Text]
2. COMPETENCE OF PARTIES:
Section 10 of the Indian contract act mandates that parties to a contract must be competent to contract. The term ‘competence to contract’ is defined in section 11.
Section 11 of Indian Contract Act:
“Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.”
Contract with a Minor:
Who is Minor: The term ‘minor’ is not defined in The Indian Contract Act. However, as per Section 3 of the Indian Majority Act, 1875, a person domiciled in India who is under the age of eighteen years, is considered as a ‘minor’.
As per Section 11 of the Indian Contract Act a minor is not competent to contract. However, it is to be noted that neither section 10 nor section 11 clarifies that if a minor enters into an agreement, the contract would be outright void or voidable at the option of the minor.
- Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal. 539 [Summary] [Full Text]
- Proform Sports Management Ltd. v. Proactive Sports Management Ltd. and Anr.  1 All ER 542 [Summary]
- Leslie Ltd. v. Sheill (1914) 3 K.B.607 [Summary]
- Nash v. Inman  2 KB 1 [Summary]
- Imperial Loan Co. Ltd. v. Stone  1 Q.B. 599 [Summary]
3. LAWFUL OBJECT AND LAWFUL CONSIDERATION
Section 23 of The Indian Contract Act defines what consideration and objects are lawful and what are not. As per this section, a consideration or object is lawful unless-
- it is forbidden by law;
- it is of nature that if permitted would defeat the provision of any law;
- it is fraudulent;
- implies injury to person or property of another;
- Court regards it as immoral;
- it is against public policy
4. AGAINST PUBLIC POLICY
A contract is considered to be ‘against public policy‘ if there is –
- an abuse of legal process
- sale of public offices
- trading with alien enemy
- unconscionable agreement or transactions caused by economic duress, but falling short of undue influence or coercion
Against Public Policy:
- Central Inland Water Transport Corporation v. Brojonath Ganguly & Anr. 1986 SCR (2) 278 [Summary]