Legal Agreements
Introduction
- One of the most crucial elements of our daily life is agreement. Every day, we make a lot of agreements. These agreements may be made voluntarily or unconsciously. Agreements give the parties a variety of legal rights and obligations. Thus, to safeguard our rights and fulfill our commitments to avoid any legal action against ourselves, it is essential to understand the different types of agreements and which agreements may be enforceable in a court of law.
Valid Agreements
An agreement that, if it were to be legally enforced, would transform into a contract and bind the parties to its terms is said to be legitimate. Section 2(e) of the Indian Contract Act of 1872 defines an agreement (the Act). Every promise and every collection of promises that serve as reciprocal consideration constitute an agreement, according to this statement. As a result, a legitimate agreement turns into a contract quite frequently.
The following are the prerequisites for a legal agreement:-
- The agreement must include a legitimate consideration.
- The parties must be able to enter into contracts in accordance with Sections 11 and 12 of the Act.
- The parties’ consent is unrestricted and free.
- The agreement’s goal is legal.
Section 11 Of The Indian Contract Act, 1872
- The requirements for the parties’ contractual competence are laid out in Section 11 of the Act. The parties must be competent in order for there to be a genuine agreement. Anyone who meets the requirements of the Majority Act of 1875, is of sound mind, and has not been expressly disqualified by the law from entering into a contract, is competent to do so. Therefore, a contract with a minor is invalid.
Section 12 Of The Indian Contract Act, 1872
- According to Section 12 of the Act, the capacity of the mind to comprehend the implications of the agreement constitutes a sound mind for the purposes of a contract. An agreement entered into by a person who is typical of an unsound mind but is conscious at the time shall be deemed valid. Similar to this, if someone enters an agreement while generally being of sound mind but is not, the agreement is worthless.
Void Agreements
- Section 2(g) of the Act provides a definition of a void agreement. “An agreement not enforceable by law is said to be void,” the statement reads. In addition to the definition, the Act’s provisions declare some agreements invalid because they have illegal goals.
Section 24 Of The Indian Contract Act, 1872
According to the clause, if the parties engage in an agreement and a portion of the consideration or object of the agreement is illegal, the agreement is void. A derivative version of the idea of severability, however, is an exception to this rule. The performance of the valid portion of the agreement will be enforceable if it can be divided into a valid consideration and a legitimate object.
In the 1997 case of Bank of India Finance Ltd. v. Custodian, BoI Finance Ltd. had contracts with its clients that were later determined to be against the rules established by the Reserve Bank of India. The Court was asked whether the contracts that had already been signed were still legitimate. The Court supported the legitimacy of such agreements and decided that even if an agreement is found to be unlawful, the transactions that result from it must continue to be legal.
Section 25 Of The Indian Contract Act, 1872
Such agreements shall not be void if the promisor and the promise have mutually decided to exclude consideration from their agreement and if this condition is stated in writing, duly stamped, and recorded as required by law. It is important to remember that in these situations, the partners’ love and affection must supersede the requirement for consideration. An agreement without consideration is also a promise made in exchange for whatever voluntary acts the promise has already performed in the past, and it is not void. Last but not least, a contract that is a promise to pay a debt that is due to a creditor, whether in full or in part, but that debt has been Last but not least, an agreement that contains a promise to pay a debt that is due to a creditor in full or in part but that debt has been blocked by limitation is not invalid.
In Rajlukhy Dabee v. Bhootnath Mookerjee (1900), the parties stipulated that the husband must give his wife a monthly maintenance payment in exchange for their agreement to live separately. It was a written document that was registered. The paper also included a number of arguments and disputes between the parties. The Calcutta High Court, however, ruled that the arrangement was null and void because there was no love or affection between the parties.
Section 26 Of The Indian Contract Act, 1872
According to Section 26 of the Act, any agreement that forbids someone from getting married is invalid. Such restrictions might include prohibitions against being hitched to anyone, in particular, members of a particular class of people, or even altogether. Only preventing a minor from getting married is an exception to this rule. Since child marriage is a felony in and of itself, such agreements must be valid.
It’s important to remember that only agreements forbidding the parties from getting married are void. When a party’s rights end upon entering into a marriage, the marriage is not void and has not been declared void.
Section 27 Of The Indian Contract Act
Any agreement that prevents a person from engaging in the profession, trade, or business of his choosing is void, according to Section 27. It is not a blanket rule that applies to all situations, though; there is an exception. If the parties to an agreement stipulating that one of the parties would purchase the goodwill of another party’s business, the agreement may also include that the buyer will not operate a rival enterprise to that of the seller.
Two competing shopkeepers from the same neighborhood were featured in the circumstances of Madhub Chander v. Raj Coomer (1874). In this instance, the plaintiff accepted the defendant’s offer to pay a sum of money if the latter did not run his shop in the same neighborhood. The plaintiff eventually filed a lawsuit against the defendant after it refused to pay the agreed-upon payment. The agreement was declared void by the court because it contained a clause that restrained commerce or business. Any agreement that restricts commerce or business in India, whether partially or totally, is therefore void.
Section 28 Of The Indian Contract Act, 1872
- According to Section 28 of the Act, contracts that prevent one of the parties from pursuing legal action or halting legal proceedings are void. Lawful circumstances do exist, nevertheless, in which the parties may be prevented from contacting the Court. An agreement with an arbitration clause is the first exception. Existing queries are included in the second exception. An agreement by a bank or other financial institution to guarantee something is the third and last exception to this rule.
Section 29 Of The Indian Contract Act, 1872
- According to Section 29 of the Act, contracts whose intent is ambiguous or impossible to determine are deemed void contracts. To give the parties clear rights and obligations, agreements must include explicit and specified goals. Any ambiguity in a contract could be a reason for its invalidation.
Wagering Agreements
When two parties enter into a wagering agreement, the first party guarantees to pay the other party should a specific event occur, and the second party commits to compensate the first party should the event not occur. It involves two parties with reasonable minds who understand they will either make a profit or lose money. As previously established, all wagering arrangements are in violation of Section 30 and are therefore void. Here is an illustration of a wagering agreement. A and B come to an agreement that if a ball hits a pot, A will give B 100 rupees, and if it misses, B will give A 100 rupees. Such a contract is void because it is a wagering arrangement.
The following components must be present for a wagering agreement to qualify as such:
- There should be a fair chance for both parties to win or lose.
- The event on which the wager is made should be beyond either party’s control.
- Winning or losing should be the sole motivation for the parties to participate in the arrangement. There should be no other motive.
- The outcome of the hypothetical occurrence is completely contingent upon the wagering agreement.
- Both parties must pledge to fulfill their obligations to pay the agreed-upon sum of money or other consideration.
Contingent Agreements
Section 31 governs contingent agreements. They are legitimate contracts, as opposed to wager agreements. Contingent agreements must be put into effect based on a commitment that depends on the occurrence or absence of an unpredictable future event. For instance, A guarantees B that if A’s home sustains water damage, B will pay Rs 2000. The following list summarises this agreement’s main points.
A legally binding agreement must exist before something can be done or avoided.
- The event for which the contract was entered into must occur in the future and be unpredictable.
- The collateral should not include the event upon which the agreement is based.
- The promise should not be a condition of the event.
Voidable Agreements
An agreement that can be terminated by either party for a variety of legal reasons is referred to as being voidable. When a law makes such a deal enforceable, it will be referred to as a contract that either party may choose to void.
According to Section 19 of the Act, a party has the right to terminate the agreement as and when it sees fit if its consent was obtained through fraud, misrepresentation, or coercion. Similar to this, under Section 19A, a party who consented to a contract under duress has the right to revoke the agreement and the right to have the contract completely annulled.
“When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract,” states Section 53 of the Act.
In addition to the aforementioned scenarios, the agreement may be voidable at the promisee’s discretion if the promisor fails to fulfill his obligation under the terms of the agreement, wherein time is a necessary prerequisite.
Express And Implied Agreements
- As was previously mentioned, an agreement is characterized as a promise and consideration. The definition of express and implicit promises is provided in Section 9 of the Act. According to this clause, any promise made by the parties in words is an express promise, and any promise made in any other way is an implied promise. Therefore, a promise made in an express agreement must be made in an express manner, and a promise made in an implied agreement must be inferred.
Illegal Agreements
Any agreements that violate the terms of the applicable Indian law are deemed to be unlawful. The agreement shall be void if either of the two circumstances—an illegal object or illegal consideration—occurs. Even if an agreement’s provisions force the parties to commit a crime, they are nonetheless illegal.
The distinction between unlawful and invalid agreements is that the former is explicitly against the law’s provisions, but the latter is not necessarily against the laws currently in effect. To put it another way, every void agreement is also illegal, but not all void agreements are.
Indemnity Agreement
- Hold harmless is the exact meaning of the word indemnity. Therefore, an indemnity contract or indemnity agreement is one in which one party expressly undertakes to hold another person or party (or parties) harmless for losses that may arise from an agreement. An illustration would be a pet business owner asking the employees to sign an indemnity agreement to avoid any potential legal issues should a pet bite the employee. The business may continue to pay for the employee’s medical care, but this is done to prevent a lawsuit alleging that the employee was intentionally injured.
Non – Disclosure Agreement
- If any of the parties associated with the organization disclose any type of private or sensitive trade information to anybody or any entity outside the organization, a non-disclosure agreement gives the business owners legal standing. Also signing a non-disclosure agreement is a common practice among employees of different companies.
Purchase Order
- It is a legally binding contract that obligates a firm or business owner to buy the specified goods in the specified quantity for the mutually agreed-upon price with particular terms and conditions for delivery and payment. Purchase orders are frequently used in sales, and many companies use them to settle disputes. The sales team’s responsibility is to solicit purchase orders from clients. Even customer service may assist in obtaining the purchase order in some circumstances.
Security Agreement
- In a security agreement, the borrower promises to hold onto any form of the asset as collateral in order to obtain a loan from the lender. It is subject to the proviso that the lender may transfer ownership of the asset indicated in the agreement to himself if the borrower is unable to repay the main amount.
Unconscioable Agreements
- Unconscionable contracts and agreements are those that are entirely based on one side of the parties involved, are unfair to the other party or parties, and are thus unenforceable by law. This kind of agreement is completely unfair and does not in any way benefit the other parties, guaranteeing opposition from them.
Agreement On Adhesion
- Adhesion agreements are utilized when one party to a contract has complete negotiating control and all other leverage, and when the agreement is binding on all parties concerned for the execution of a certain action or process while it is being used to construct the contract to their mutual benefit.
Stock Purchase Agreement
- It is an agreement between all parties involved to sell a specific stock to a specific person in a predetermined quantity. The person would be responsible for paying the company according to the predetermined conditions and pricing. The parties may choose to prolong or terminate the contract once the Stock Purchase Agreement is complete, in which case they will be required to return any unsold stock.
Transfer Agreement
- They are also referred to as “transfer agreements” when a sole proprietorship is converted into a limited liability company. These are typically carried out in order to convert a business from a sole proprietorship to a corporation. Due to the ownership and segregation of assets and liabilities, transfer agreements are very difficult.
Top 13 Facts About Types Of Legal Agreements
Fixed-price contracts are among the three most popular types of agreements. Cost-plus agreements contracts for supplies and time.
An agreement is a sign of two or more people’s consent to one another. It occurs through an offer and an acceptance and represents a coming together of the minds with a shared goal. Words, behavior, and in certain circumstances even silence can all be used to demonstrate an agreement.
An informal agreement has no bearing on the law.
A written agreement is only enforceable once all of its crucial terms have been agreed upon. The words that are necessary to keep the parties responsible for their promises are known as essential terms.
Bonding Agreements are contracts between a surety or other bonding party and its clients—customers of any Loan Party and/or their subsidiaries—that serve as evidence of or relate to any performance bonds, construction bonds, or other similar obligations.
With a few limited exceptions, handshake agreements and other verbal contracts are legally binding. It is advised for all parties to sign a written form and get expert legal counsel because oral agreements are challenging to substantiate.
A court will also consider the following eight factors when deciding whether a contract is enforceable: incapacity, coercion, undue influence, misrepresentation, nondisclosure, unconscionability, violations of public policy, mistake, and impossibility.
Unconscionable contracts are those that are so blatantly biased against one party and unfair to the other that the law deems them to be unenforceable.
Contracts for the sale or distribution of illegal substances like narcotics or drug paraphernalia, as well as agreements for unlawful activities like prostitution or gambling, are some other examples of illegal contracts. contracts for employment that allow the hiring of minors.
A void agreement is not punishable by law, but an illegal agreement is, and the parties to it are therefore subject to punishment and penalties under the Indian Penal Code (IPC). Collateral agreements of a null agreement might not be null, meaning they might still be valid.
A quasi-contract is an agreement made after the fact between two parties who would not have otherwise been bound legally. A judge may order this type of contract in order to rectify a circumstance in which one party gained something at the expense of the other.
An executory contract is an ongoing arrangement between two parties that places a time limit on the completion of specific tasks. They are contracts in writing that make sure both parties are aware of their respective obligations.
In contrast to the more popular bilateral contract, a unilateral contract is a sort of agreement where one party (also known as the offeror) makes an offer to another individual, business, or the general public.
Tanisha Srivastava
Writer
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