Frequently Ask Questions On Contract ACT

What are the essentials of a valid contract?

As per the Indian Contract Act, all agreements are contract if the following requirements are fulfilled:

a) Parties entering a contract must be competent to contract;

  1. b) free consent of both the parties;
  2. c) agreement has a lawful object;
  3. d) is not expressly declared to be void;
  4. e) valid and lawful consideration
  5. f) enforceable by law.

Any agreement which fulfils the above requirements is a valid contract. Any valid contract, written or oral, is enforceable.

What are void and voidable contracts?

A void contract is an agreement which is not legally enforceable. It does not give rise to any legal liability since the contract itself is a nullity. An agreement entered into by parties who are incompetent to contract, agreement with unlawful consideration, agreements is restraint of trade, agreement is restraint of marriage, agreement contingent upon impossible event etc are some of the instances of a Void Contract.

A voidable contract which is void at the option of one of the either parties. An agreement which is enforceable by law at the option of one or more parties thereto, but not at the option of others is a voidable contract. Such contract continues at the option of one party and it remains valid until rescinded. A voidable contract becomes invalid only if it is cancelled by any of the two parties who are engaged in the contract.

What is a valid consideration for a contract?

Consideration forms one of the main components of a contract. Consideration means the price or ‘something in return’ that one party offers in return of goods/service etc. from the other party. Under the Act, consideration for a contract is when at the desire of the promisor, promise 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 is consideration.
A consideration may be a past, present or future act or abstinence and it must be lawful. An agreement without consideration is void and not enforceable in law. An agreement without any consideration is only a promise and not binding upon the parties.

What is a Force Majeure clause in a Contract?

Force Majeure means an occurrence of event or effect which can neither be anticipated nor controlled. Incorporating a force majeure clause in the contract lays down that the performance of contract, if rendered impossible due to any event which could not have been anticipated or controlled, it provides temporary reprieve to a party from performing its obligations. Such clause lays down the particular events or circumstances which would qualify as force majeure events applicable to the said contract.  In the event of occurrence of these events, the parties will be relieved from performing their respective obligations during such period when the force majeure event continues. As per the understanding between the parties, the parties may be required to issue a notice to the other party informing about such event and invocation of the clause. As per the discretion of the parties, it can be further stated that if the force majeure event continues beyond a particular period of time, the parties may be permitted to terminate the said contract.

What are Non-Disclosure Agreements?

It is an agreement that is executed to protect the confidentiality of information between the parties. The parties signing the agreement agree that any sensitive/confidential information which may be obtained, received by them shall not be made available to any third party or used in any manner whatsoever other than the purpose for which such information is shared. Generally, parties entering into business agreement enter into such agreement so as to easily share information with regards to the purpose and have provision to protect such information. It is also referred as Confidentiality Agreement or Mutual Non-Disclosure Agreement.