Section 2: the Interpretation Clause that Carries the Whole Act

(h) Contract.

"An agreement enforceable by law is a contract."

(i) Voidable contract.

"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."

(j) A contract which becomes void.

"A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable."

Broken down: the five clauses that carry the marks

Six of the ten are straightforward once read. Four repay close attention, because examiners build questions out of their exact wording.

Clause (a): "signifies" and "with a view to obtaining the assent"

Two conditions, and both are tested:

1. The person must signify his willingness, that is, make it known by some act or omission. A private intention is not a proposal.
2. He must do so with a view to obtaining the assent of the other. This is the phrase that separates an offer from an invitation to treat, from a mere statement of price and from an advertisement. If the statement was not made in order to get the other person's agreement to it, it is not a proposal. See [Proposal: What an Offer Is, and What Only Looks Like One].

Note also that a proposal can be to abstain from doing something. A promise not to compete, not to sue, or not to build above two floors is as much a proposal as a promise to deliver goods.

Clause (d): three phrases that change Indian law

Clause (d) is the most heavily loaded definition in the Act, and three of its phrases each produce a rule that differs from English law.

1. "At the desire of the promisor." The act must be done because the promisor asked for it. Something done voluntarily, or at a third person's request, is not consideration however much it benefits the promisor.
2. "The promisee or any other person." Consideration may move from a stranger to the promise. English law requires it to move from the promisee. This is the root of the Indian exception to privity, taken up in [Privity of Contract and Privity of Consideration].
3. "Has done or abstained from doing." The past tense is deliberate. Past consideration is good consideration in India, where English law generally treats it as no consideration at all.

Clause (d) also lists three forms consideration may take: an act, an abstinence, or a promise.

Clause (e): "forming the consideration for each other"

This is the phrase that makes consideration essential to an agreement, not merely to a contract. A promise unsupported by consideration is not an agreement under the Act at all, which is why section 25 is worded as an exception.

Clause (i): "at the option of one or more of the parties"

A voidable contract is valid until the party entitled to avoid it chooses to do so. It is not a weaker kind of void agreement; it is a good contract with a hole in it that only one side can use. The chapters on coercion, undue influence, fraud and misrepresentation all end in section 19, which makes the contract voidable at the option of the party whose consent was so caused.

Void, voidable, valid: the distinction, from clauses (g), (h), (i) and (j)

The Act never uses the phrase "void contract" for something void from the start. It says void agreement. Getting this vocabulary right is worth easy marks and getting it wrong is a visible error.

A worked example

Anil writes to Bharat: "I will sell you my Nano car for one lakh rupees if you let me use your godown free for a month." Bharat replies agreeing.

• Anil signified his willingness to do something (sell the car) with a view to obtaining Bharat's assent: proposal, clause (a).
• Bharat signified his assent: acceptance, clause (b), and the proposal became a promise.
• Anil is the promisor, Bharat the promisee, clause (c).
• Bharat's use of the godown was given at Anil's desire, and Anil's promise to sell was given at Bharat's: each promise is the consideration for the other, clause (d).
• Two promises forming the consideration for each other are reciprocal promises, clause (f), and together they are an agreement, clause (e).
• If the requirements of section 10 are met, the agreement is a contract, clause (h).
• If it later turns out that Bharat obtained Anil's consent by fraud, the contract is voidable at Anil's option, clause (i), by force of section 19.
• If the car is destroyed before delivery and performance becomes impossible, the contract becomes void, clause (j), by force of section 56.

Every one of the ten definitions has now been used on one set of facts. That is the reason to learn them together.

What it does NOT mean

"A void contract and a voidable contract are two degrees of the same thing." They are not related in that way. A voidable contract is fully valid and binding unless and until the aggrieved party avoids it; if he does not, it is enforced like any other. A void agreement never had legal force.

"Consideration must come from the promisee." Clause (d) says "the promisee or any other person" in terms. This is one of the clearest departures from English law in the Act.

"An agreement is any arrangement between two people." Under clause (e) it is not: there must be promises forming the consideration for each other. An arrangement with nothing given on either side does not reach the definition.

Quick revision

• Section 2 defines: (a) proposal, (b) acceptance and promise, (c) promisor and promisee, (d) consideration, (e) agreement, (f) reciprocal promises, (g) void agreement, (h) contract, (i) voidable contract, (j) contract which becomes void.
• (a): signifies willingness, with a view to obtaining the assent of the other; may be to do or to abstain.
• (d): at the desire of the promisor; the promisee or any other person; act, abstinence or promise; past tense allows past consideration.
• (e): promises forming the consideration for each other.
• (i): enforceable at the option of one party only.
• The Act says void agreement, never void contract, except in clause (j) where a contract ceases to be enforceable.

Test yourself

1. Define consideration, with the section. Section 2(d): 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, abstinence or promise is called a consideration for the promise.

2. Which two words in clause (a) separate an offer from an invitation to treat? "With a view to obtaining the assent" of the other person. A statement not made in order to obtain assent is not a proposal.

3. A's consent was obtained by coercion. What is the status of the contract? Voidable at A's option under section 2(i) read with section 19; valid and enforceable until A avoids it.

4. Can consideration move from a stranger to the contract in India? Yes. Section 2(d) says "the promisee or any other person", unlike English law.

5. What is the difference between clause (g) and clause (j)? Clause (g) describes an agreement that was never enforceable. Clause (j) describes a contract that was enforceable and later ceased to be, as where performance becomes impossible under section 56.