Wednesday, July 29, 2015

REQUIREMENT OF AGREEMENTS FOR PROPERTY TRANSACTION


The various modes of transfer of property are Sale,Mortgage, Lease, Exchange, Gift etc., All these transfers are subject to general principles of Transfer of Property and contract under the Indian Contract Act, 1872.  This has been expressly stated in Sec4 of the transfer of property Act, which states that, “The Chapters and sections of this Act which relate to contracts shall be taken as part of the Indian contract Act, 1872.”

Now so far as agreement & contract is concerned, it is very much essential to know,
  1. What is valid agreement?
  2. When agreement becomes contract?
  3. What is the effect of agreements made not according to the law?
The term “agreement” has been defined in Sec 2(C) of the Indian contract Act, 1872 as, “Every promise and every set of promises, forming the consideration for each other, is an agreement”.

Consideration:
One person is said to make a promise to the other, if his /her offer is accepted by the other person. When this promise is supported by consideration, it becomes a contract. Therefore first and foremost requirement of agreement is, it must have been supported by the consideration.However, the consideration is not a determining factor in certain cases as detailed in Section 25 of Indian Contract Act

  1. Gift to near & dear ones,
  2. Something given for past service
  3. Acknowledgement of time barred debt.

Requirement:
The second important requirement of agreement, for an agreement to be enforceable by law, it must fulfill the conditions set out in Sec – 10 of the Indian contract Act.  They are:
  1. Agreement must be made
  2. By competent parties,
  3. With free consent,
  4. For lawful consideration and
  5. For lawful object.

Sec11 of the Indian Contract Act defines competent parties as, those persons who have
  1. Attained the age of majority
  2. Are of sound mind, and
  3. Are not disqualified by any provisions of law.

The age of majority for any person is 18 years under the Indian Majority Act. In case of a person is suffering from any mental disease during certain intervals of time, he or she can enter into Property agreement during the time such person is of sound mind. Now the question that arises for consideration is if person is drunk or intoxicated due to drugs can he enter into an agreement.  In this kind of situation, if the intoxicated person is in position to understand and appreciate the pros and cons of terms and conditions of the agreement, there is no bar for the drunken person to enter into an agreement. However, in case of any disputes, it has to be established to the satisfaction of the court that the person suffering from mental disease, under intoxication was in a position to understand the terms, pros and cons of agreement.

Another requirement for a person to enter into an agreement is that, such person should not have been disqualified by any law in force like insolvency Act.

Free Consent:
The parties to the agreement should have agreed to the terms with free consent. Any consent is said to be free, when it is not given under.
  1. Coercion,
  2. Undue influence,
  3. Fraud
  4. Misrepresentation. 
In case consent is given under by any of above elements then the agreement or contract becomes voidable. The effect of voidable contract is the contract becomes enforceable only at the option of the party whose consent has been taken by coercion or undue influence or fraud or misrepresentation.Under voidable contract if any property is sold, the purchaser gets a valid title so long the contract is not cancelled on the ground that contract is voidable.

Lawful Object:
The third & fourth essential requirement of agreement are:-
  1. Lawful consideration &
  2. Lawful object.
If the consideration and object of contract is not lawful, then such agreement becomes void, Contracts or illegal contracts u/s 23 & 24 of the Indian Contract Act.  If any property is sold under void or illegal contract, then purchaser would not get valid title to the property. Void contracts are not enforceable.

Consequences of void, voidable or illegal contracts.
If a contract is declared as void, the transferee of property would not get valid title to the property, the position of parties is like as if they are not entered into the contract at all.  Therefore realestate of the contract Act, the parties are liable to return the advantages they have taken under void contract.


As stated earlier, in voidable contract the transferee will get a valid title, so long the contract is not cancelled by the party whose consent was obtained under coercion, undue influence, fraud, misrepresentation. Such party has to exercise his option of treating the contract as void within the limitation period, which is three years. In case of illegal contracts, if one party has given or delivered something to the other party the same cannot be recovered at all.

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