Analysis of Sec. 2(h) of Indian Contract Act 1872

Analysis Of Sec. 2(h) of Indian Contract Act 1872

Section 2 (h) of the Indian Contract Act, 1872 states that “an agreement enforceable by law is a contract.” A deeper analysis of the given definition would reveal that it contains two elements which itself got many sub-analyses, i.e., agreement and legal obligation. It also mentions the fact that all contracts are agreements but all agreements are not contracts.

Section 2 (h) also signifies that a valid contract is nothing but an agreement enforceable by law. In order to understand what a “valid contract” is, Section 2(h) must be read along with Section 10. Section 10 of the Indian Contract Act provides for several interwoven Sections of Indian Contract Act, 1872 that should be witnessed to state an agreement to be legally enforceable turning it to be a valid contract. 

The essentials of a valid contract are –

• Offer & acceptance, section 2(a) and section 2(b). Section 2(c) read along with section 2(a) & (b). 

There must be the elements of valid offer & valid acceptance. For e.g.- certain sections of the Contract Act,1872 includes Sec. 7, Sec. 7(1) & Sec. 7(2). 

• Intention to create legal relations: An offer must be such that when accepted it will result in a valid contract. A mere social invitation cannot be regarded as an offer, because if such an invitation is accepted it will not give rise to any legal relationship. e.g.- Balfour vs. Balfour, 1919 2 KB 571.
• Terms of the offer must be clear and definite: Knowledge of the Intention of the parties is very essential as without this the courts will not be able to decide what the parties want to do. Therefore, the terms of the offer must be clear and definite and not vague and loose. 
• Must create a legal relationship: It is essential for a valid proposal that it must be made with the intention of creating a legal relationship otherwise it will only be an invitation. A social invitation may not create a social relationship. An offer must lead to a contract which creates legal obligations and legal consequences in the case of non-performance of the contract.

CROSS-SECTIONAL ANALYSIS

Sec. 2(a) denotes, “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

Sec. 2(b) denotes, “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.”

However, there must be lawful offer and lawful acceptance. 

The essentials of a lawful offer are – 

• An offer may be express or implied. (Sec. 9).
• An offer must be capable of creating legal relation.
• Definite, unambiguous and certain in nature. (Sec. 29).
• An invitation to offer is no offer.
• Offer must be communicated. (Sec. 4)
• Offer might be general or specific. 
• Offer must be in the view to obtaining free consent. (Sec. 13 & Sec. 14 read along with Sec. 15, 16, 17, 18, 20, 21 & 22.
• Two identical cross – offers do not make a valid offer.
• An offer can be made subject to any terms and conditions. Further, if the offeror does not communicate or inform the offeree about the deviated acceptance from the offeree, the offeror is deemed to have accepted the deviated acceptance. (Sec. 7)

The essentials of lawful acceptance are – 

• Acceptance must be given by the person to whom an offer is made. However, there is an exception in case of the agent and principal under Sec. 182.
• Acceptance must be absolute and unqualified. Under Sec. 7(1).
• Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be acted. Under Sec. 7(2).
• Acceptance must be communicated by the accepter.
• Acceptance must be given within a reasonable time and before the offer lapses and/or revoked. Under Sec. 6(2), Sec.7, Sec. 6(4), Sec. 6(1), Sec. 6(3).
• Acceptance must succeed the offer. 
• Rejected offers can be accepted only, if renewed.   

Sec 2(c) denotes the labelling of “promisor and promisee”. 

“The person making the proposal is called the promisor, and the person accepting the proposal is called the promisee.”

There must be a legal intention behind every offer and acceptance turning into promise and the promise along with lawful consideration turning into an agreement enforceable by law is a valid contract. (Sec. 2(d) and Sec. 23). 

In the landmark case of Balfour vs. Balfour, 1919 2 KB 571, Mrs. Balfour’s action was dismissed on the ground that there was no legal intention between Mr. and Mrs. Balfour’s verbal promise to a maintenance fee of 30 pounds to be send by Mr. Balfour every month as it was denoted as an outcome of domestic relation out of affection and love without any writing and registration. Sec. 25(1). 

Where a valid offer and valid acceptance establishes a promise between the offeror and the acceptor, the promise when gets combined with the mutual consideration leads to an agreement. 

Here, comes the Sec. 2(d) and Sec. 23. 

Sec. 2(d) denotes, “when at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, such act or abstinence or promise is called a consideration for the promise.”

Now, Sec. 2(d) is read along with Sec.23 which implies, lawful consideration. A consideration is ‘lawful’, unless, it is forbidden by law; or is of such a nature that, if permitted it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is opposed to public policy.

Talking about the presence of Capacity of Parties, Sec. 11 states that “in order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject.”   Sec. 12 talks about the sound mind while entering into a contract.      It is also read along with Sec. 68, which states that, “if any of the parties to the agreement suffers from minority, lunacy idiocy, drunkenness, etc., the agreement is not enforceable at law, except in special cases, e.g.- in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate.”

Consensus-ad-idem signifies the meeting of minds, which means the parties must give consent upon the same thing in the same sense. (Sec. 13). 

Further, free consent, laid down in Sec. 14 signifies, “consent is said to be free” when, it is not caused by-

• Coercion, Sec. 15.
• Undue Influence, Sec. 16.
• Misrepresentation, Sec. 18.
• Fraud, Sec. 17.
• Mistake, Sec. 20, 21 and 22.

Sec. 21 implies, “mistake of law of the country or mistake of law.”

Sec. 20 implies, “bilateral mistake” and Sec. 22 implies, “unilateral mistake”.

Sec. 56 lays down that, “an agreement to do an act impossible in itself is void.” 

It is read along with Sec. 32, which implies that, “a contingent contract to do or not to do something if an uncertain future event happens, cannot be enforced by law unless and until the event has happened. If the event becomes impossible, such contract becomes void.” 

Again, it can be in turn read along with Sec. 36 which implies that, “agreements contingent on impossible event is void.” 

 If we indulge deep into Sec. 56 and 32 and 36, it witnesses the assent of Sec. 53.

 Sec. 53 states that, “when a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, then the contract becomes voidable at the option of the party so prevented.” 

Here again comes the presence of Sec. 2(f) which signifies that “promises which form the consideration or part of the consideration for each other, are called reciprocal promises.”

Now, as Sec. 56, 53, 32 altogether talks about Void and Voidable contract, an essence of Sec. 2(i) and Sec. 2(j) can be found. 

Sec. 2(i) talks about “an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.” 

Sec. 2(j) talks about, “a contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable.” (Read along with Sec. 2(g).

Sec. 24 to 30, specify, certain types of agreements which have been expressly declared void. 

The agreements that have been expressly declared void are as follows – 

• Agreements in restraint of marriage. (Sec. 26)
• Agreements in restraint of trade. (Sec. 27)
• Agreements in restraint of legal proceedings. (Sec. 28)
• Agreements, the meaning of which is uncertain. (Sec. 29)
• Agreements by way of wager. (Sec. 30). It can also be read along with Sec. 294-A of the IPC declaring ‘conducting of lottery’ a punishable offense. 
• Agreements contingent on impossible events. (Sec. 36) read along with (Sec. 32)
• Agreements to do impossible acts. (Sec. 56)

Drafting Of Observation

If we look into the definition of Sec. 2(a), i.e., the definition of a proposal/offer, it includes the following three essentials-

1. Expression of the willingness
2. It must be to another person
3. Must be made with a view to obtaining the assent of the other person
   

Now, under this Sec. we can also come across a hidden requirement, i.e., the assent of the other person (offeree) must be under free consent without any element of coercion, fraud, undue influence, misrepresentation or mistake. Thus, without proceeding further we come across the fact that Sec. 2(a) has the presence of Sec. 14 in it which in turn has the touch of Sec. 15, 16, 17, 18, 20, 21, 22.
Again, where Sec. 2(b) talks about the definition of acceptance, it itself includes the hidden clauses of free consent. After a lawful offer is made, it is lawfully accepted giving rise to a promise.
However, the promise must get clubbed with mutual consideration which is too wide in concept under Contract Law, 1872 due to the inclusion of three things, namely- a) the timeline of past-present-future, b) the scope of act, abstinence & promise, c) a general Law of Contract. This in turn gives rise to an agreement. And the agreement in turn must be enforceable in the court of law, thus constituting a valid contract.
Here, let’s take a pause, and analyze the sections and sub-sections hidden within it.
A promise, i.e., Sec. 2(c) must get clubbed with Sec. 2(d), but to constitute a valid agreement, Sec. 2(d) must get clubbed with Sec. 23. Here, its not the end. Again, Sec. 2(c), Sec. 2(d) and Sec. 23 must get clubbed with Sec. 2(h), which will compose to a valid contract.
However, there is a loophole. If we club Sec. 2(c), Sec. 2(d) and Sec. 23 we get an agreement. Now, look into the loophole. Sec. 2(h) states, only the word agreement in its definition, but not valid agreement. If we were to compose a valid contract, only a mere agreement is not enough. It must be a valid agreement. So, a valid agreement in turn is a compilation of a lot of sections and essentials. (As mentioned in the cross-sectional analysis).