Agreements create rights and duties. An agreement constituent the best evidence of justice between the parties and should be enforced. An agreement may be legal or moral. A legal agreement gives rise to legal consequences and hence it is enforceable. According to section 2(h) of the Indian Contract Act 1872, "an agreement enforceable by law is a contract.
What is an agreement?
When two or more competent parties freely consented to do or not to do a lawful act or orally or in writing, the parties are said to have entered into an agreement.
When agreements become invalid?
Following are the circumstances in which an agreement/contract is declared/ rendered invalid and is not enforceable.
(1) Incapacity or Incompetence -
Incapacity of the parties may render an agreement invalid.Section 11 of the Indian Contract Act talks about Capacity/Competent to enter into a contract. According to Section 11, Every person is competent to contract who is major, sound mind and is not disqualified from contracting by any law. Section 11 and Section 12 of the Indian Contract Act 1872 declares that minor lunatics and the persons of unsound mind are incompetent to contract and hence the agreement/contract entered into by such persons are invalid
(2) Informality -
There are certain agreements which require certain legal formalities to be fulfilled and if those formalities are not fulfilled the agreement becomes invalid. For example, a Promissory Note must be Affixed with a revenue stamp.Similarly, certain documents require attestation and some other registration.The want of a written agreement the non-registration of an agreement or omission of the signature of the parties may make an agreement invalid.
(3) Illegality -
Some agreements are declared to be invalid by law. Such agreements are immoral or against public policy. Examples of such agreements are wagering contracts or agreement in restraint of trade.
(4) Essential error or mistakes
An agreement may become invalid on account of some error or mistake. Section 20 to 22 of the Indian Contract Act 1872 discuss the mistake/error in the formation of agreement/contract.
i) Agreement void where both parties are under mistake as to matter of fact (Section 20 of I.C.A)
Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.
An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void. (c) A, being entitled to an estate for the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.
ii) Effect of mistakes as to law (Section 21of I.C.A) -
A contract is not voidable because it was caused by a mistake as to any law in force in India, but the mistake as to a law not in force in India has the same effect as a mistake of fact.
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.
iii) Contract caused by mistake of one party as to matter of fact (Section 22 of I.C.A) -
A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
(5) Coercion -
If a person commits or threatens to commit an act forbidden by the Indian Penal Code with a view to obtaining the consent of the other person to an agreement, the consent in such case is deemed to have been obtained by coercion. In simple words, coercion means "making a person to give his consent by force or threat."
Section 15 of the Indian Contract Act, 1872 defines "Coercion as the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England.
See in Detail >>>> Coercion: Meaning, Definition and Essential Elements of Coercion
(6) If there is No Free Consent / Consent obtained by threat -
The term Consent means "agreed to "or giving acceptance. The parties to the Contract must freely and mutually agree upon the terms of the contract in the same sense and at the same time. There cannot be any agreement unless both the parties it to agree to it. If there is no Consent, Agreement will be void ab initio for want of consent. Section 13 of the Indian Contract Act 1872 defines Consent as " Two or more person are said to consent when they agree upon the same thing in the same sense."
(7) Want of Consideration -
Section 2(d) of the Indian Contract Act, 1872 defines Consideration. "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, something, such act or abstinence or promise is called a consideration for the promise" In simple words Consideration means something in return.
If there is a want of consideration in a particular agreement, that agreement becomes invalid. Law requires that if an agreement is to be valid, it must be for a valuable consideration. The consideration must be valuable although it may not be adequate. Even the inadequacy of consideration is taken into account to find out whether the consent of the promisor was freely given or not. According to Section 25 of the Indian Contract Act, 1872, an agreement without consideration is void. However, there are certain exceptions to the general rule.
Difference/ Distinction between Coercion and Undue Influence