Contract law : Introduction,Formation,Constituents for CLAT

Contract law,in simple terms,

A contract is an agreed set of conditions between two or more persons for a consideration.

Contract law

However, Indian Contract Act, 1872 which governs the Indian Contract Law lays down some elaborate conditions to be fulfilled in order to be recognized as a contract:

  • Free consent to the agreement

  • Parties are competent to contract

  • Lawful consideration

  • Lawful objective

  • No declared void under Indian Contract Act.

Now let’s understand in brief the elements stated above:

Essential Elements of a Contract in Contract Law

A) Free consent

The two essential requirements of any contract in respect of the element of consent’ are-

  • the presence of consent itself
  • the fact that this consent should have been freely given

Consensus ad idem”,i.e. agreeing on the same thing in the same sense

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Let’s understand it through an example:

Rajan has an exotic dog breed named Mercedes. He also owns a car named Mercedes. He is interested in selling off his car. He makes an offer to sell Mercedes to Anuj, who is a dog lover is interested in buying the dog, agrees to terms.

Here, Rajan intends to sell off his car but Anuj is under the impression of buying the dog.

Hence, there is no Consensus ad idem.

Thus, for a contract to come into force, persons need to agree to the same terms of the contract.

Once the terms are understood mutually, next need arises for the free consent.

Free consent implies that the party accepting an offer and entering into a contract with another must have done so without any force or pressure from anyone, whether physical or mental, agrees with the terms of the offer and wishes to establish the contractual relationship with the other party. Consent is said to be free when it is not caused by:

  1. coercion
  2. undue influence
  3. fraud
  4. misrepresentation
  5. mistake

If consent is given under any of the above, the contract is rendered invalid under the law.

Coercion: Coercion can be in the form of some bodily harm (physical) or harm to property (material).

Undue influence: An influence becomes “undue” when it’s driven towards achieving a particular result.

It can be when a person is superior when the person is in a position to obtain consent to an agreement.

Fraud: Anintent to deceive” or “induce to give consent” is termed fraud. It can be in the form of concealment of facts, promising of doing something without any actual intention, suggestion that a fact is true.

Fraud is punishable only when, it is made knowingly by a person.

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Misrepresentation: An incorrect statement is termed as misrepresentation. It can be as:

An assertion of a fact or breach of duty (Read here: Law of Torts) , both of which induce a person to believe in the correctness of a fact.

Mistake: A mistake could either imply no consensus at all between the parties or it could mean a genuine agreement with a mistake as to certain facts in the contract.

B) Competence of the parties to contract

  1. Who have attained majority i.e.18 years under Indian law or 21 years wherein the court has appointed a guardian for the minor’s person or property.
  2. Who are of sound mind, i.e. are capable of sound mind and capable of understanding of its effects.

Above fulfilled conditions legalizes competence of a person contracting.

C) Lawful consideration: A consideration should be proportionate to the object of the agreement.

D) Lawful object: Objective of an agreement needs to be lawful,i.e. the object is not illegal,e.g. murder, assault etc.

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