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What is a Contract Under Section 10 of the Indian Contract Act?

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  • Post published:December 21, 2023
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Last Updated on January 2, 2024 by Kanakkupillai

The Indian Contract Act, enacted in 1872, establishes the legal framework governing contracts in India. It provides an explanation of the essential elements required for a contract to be considered legally valid. Section 10 of this Act delineates the essential elements that an agreement must include to be legally recognized as a valid contract. Let us examine Section 10 in detail and its content.

Understanding Section 10 of the Indian Contract Act

Definition of Contract: 

Section 10 in the Indian Contract Act says a contract is an agreement that the law can make people follow. But for an agreement to be a real contract, it must have specific important parts.

Essentials of a Valid Contract:

  • Offer and Acceptance: A contract begins when one party presents an offer, and another party accepts it without any alterations. 
  • Both Want Legal Relations: Both people in the contract need to really want it to be official. Contracts for social stuff usually don’t count.
  • Something Valuable Exchanged: Every contract needs something valuable traded between the people involved. It could be money, stuff, or even services.
  • People Can Make the Deal: The people in the contract must be old enough, sane, not banned by law, and not forced to do it.
  • Agreeing Freely: Everyone involved should agree without being pushed, lied to, or tricked. Contracts made under pressure or lies don’t count.
  • Doing Something Legal: The contract’s purpose must be legal. Deals for illegal stuff or things against what’s right aren’t valid.

Void vs. Voidable Contracts:

  1. Void Contracts: These contracts don’t count because they’re missing important stuff or aiming for illegal things. They’re zero in the eyes of the law.
  2. Voidable Contracts: These contracts start off okay, but one person can cancel them if they were forced, lied to, or tricked into agreeing.

Certainty and Possibility of Performance: 

To make a contract count, it needs clear and doable terms. Everything agreed upon must be possible and allowed by the law.

In the Contract Act, a bunch of promises is called an agreement (Section 2(e). However, not all agreements can be enforced by law. As per Section 2(h), a contract is a special agreement that can be legally enforced. It’s a solid promise that becomes a legal deal only if it meets all the rules in Section 10.

It is important to note that although all contracts are agreements, not all agreements are considered contracts. Contracts stick to Section 10 rules, making them legally solid deals. So, while every contract is an agreement, not every agreement becomes a full-on contract.

Agreements are classified into two categories.

Some agreements don’t fit the rules in Section 10 of the Indian Contract Act, so they can’t be seen as contracts you can legally enforce. These agreements are like they don’t even exist, as Section 2(g) of the act says. For instance, a contract made by someone too young isn’t valid. The act (Sections 24-30) explains these kinds of contracts more.

But if an agreement ticks all the boxes in Section 10 and is good to go by the law, then it can be enforced. Section 2(h) and Section 10 are where you find the must-haves for a legal contract. If anything’s missing, it won’t be a deal you can legally count on.

A contract follows the set rules and conditions required by the law. A contractual agreement that adheres strictly to these criteria is referred to as a statutory contract, its classification being contingent upon the extent to which it conforms to these regulations.

For an agreement to have legal validity, it is necessary for both parties to provide their joint approval.

The necessary components for a legally binding agreement as outlined in Section 10 of the Indian Contract Act

  • Offer and Acceptance: For the contract to be legally binding, both parties must come to a mutual understanding and agreement on the exact terms and conditions. It is crucial to obtain unanimous consensus and comprehensive comprehension of the problem.
  • Consensus on Terms: Both parties must reach a mutual agreement on the same aspects and in the same manner for the contract to be legally binding. The key is to ensure that everyone is in agreement and has a shared understanding.
  • Creating a Legally Profound Situation: For a contract to have weight, it is crucial that both parties be aware that neglecting to fulfil their duties may lead to legal consequences. This demonstrates their commitment to the pact. A contract may only be considered as such if there is a formal intention to make it legally binding. Social or familial agreements are not legally binding due to their non-binding nature.

Competency of parties

As to Section 10 of the Indian Contract Act, anyone involved in a contract must have the necessary legal capacity. 

Section 11 of the Contract Act establishes explicit standards for persons to meet to be considered contractually competent. A person is considered legally capable of entering into a contract if they have attained the age of majority, have mental capacity, and are not excluded by any relevant legislation.

However, certain categories of individuals face limitations or are deemed entirely incapable of entering into contracts due to their legal, political, or corporate status:

  • Alien Enemies: Deals with people marked as “alien enemies” don’t count. They’re not valid or enforceable.
  • Foreign Leaders and Ambassadors: They can’t make deals directly in a country unless they use their local representatives.
  • Convicts: People in prison can’t make agreements while they’re serving time.
  • Insolvents: If you can’t pay what you owe, you can’t make agreements.
  • Companies or Official Groups: Their deals only count for what they said they’d do in their official papers.

There was this big court case, Mohori Bibee v. Dharmodas Ghose, that showed how kids can’t make serious contracts. In this case, a kid mortgaged property to a money lender, but the court said no way. So, the lender couldn’t pay the kid back because the law doesn’t make kids responsible for these kinds of deals.

Free Consent

Section 10 of the Indian Contract Act says how important it is for people to agree freely. Section 13 talks about how everyone involved should agree on the same thing in the same way. That agreement is the base of any contract.

The next part talks about free consent, which is super important for a contract to be real. Free consent means nobody is forced, tricked, or influenced into agreeing. If any of these things happen, the person affected can cancel the deal. And if someone agrees by mistake, the deal doesn’t count.

Many things can mess up consent, especially “coercion.” As described in Section 15, coercion is when someone uses threats or does something against the law to make someone agree. There was a case, Ranganayakamma v. Alwar Setti, where a widow was made to adopt a kid before she could do her husband’s last rites. The court said that adoption wasn’t okay because she was forced into it. 

Threat of Suicide as Coercion:

In the Indian Penal Code, it’s against the law to threaten to commit suicide—that’s considered coercion. In a case called Ammiraju v. Seshamma, a guy said he’d kill himself unless his family gave the property to his brother. They did it, but later in court, they said they were forced. The judges agreed, saying that threatening suicide counts as coercion because it’s illegal under the law.

Impact of Coercion on Contracts:

When a contract is executed under coercion, the benefiting party must return any benefits received. If the impacted party incurs damages, they have the ability to seek compensation from the other party involved.

Coercive Manipulation and Unfair Agreements:

Section 16 provides a definition of undue influence, specifically focusing on circumstances when one party has a superior position over the other, which they abuse to get unfair advantages. In unconscionable bargains, where parties are unequal, the law presumes undue influence, placing the burden of proving otherwise on the dominating party.

Dealing with Pardanashin Women:

Pardanashin women, who lead secluded lives, are protected by the law due to their potential ignorance. Contracts made with them are presumed to be under undue influence unless proven otherwise by demonstrating clear understanding, independent advice, and free consent.

Fraud and Misrepresentation:

Fraud involves deception by a party to induce another into a contract for their gain. Misrepresentation includes false assertions, breaches of duty leading to an advantage, or causing a party to misunderstand the subject of an agreement.

Consent in Specific Contracts:

Partnership and antenuptial agreements require all involved parties to consent. Antenuptial contracts, although not recognized under Indian marriage laws, are regulated by the Indian Contract Act and may hold validity in certain jurisdictions like Goa.

Legal enforceability of verbal agreements:

Oral agreements may be enforced if they meet the requirements for a legally binding agreement. However, written agreements hold importance in legal proceedings as oral agreements lack concrete evidence unless properly proven.

Enforceability of Oral Contracts:

In Food Corporation of India v. Vikas Majdoor Kamdar Sahkari Mandli Ltd, the Supreme Court recognized oral agreements for compensation under Section 70 if unproved but benefited the defendant. Oral agreements, while valid, necessitate proper evidence to be admissible in court.

Lawful consideration and lawful object

Section 10 of the Indian Contract Act mandates lawful consideration and a lawful object. However, under Section 23 of the same act, certain considerations and objects are deemed illegal:

  • If prohibited by law,
  • If it breaches the terms of another law,
  • If fraudulent,
  • If it harms another person’s person or property,
  • If deemed immoral or against public policy by the court.

Contracts with such illegal clauses aren’t recognized as genuine contracts under Section 10 of the Indian Contract Act. 

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Iram

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