Contracts, which represent the mutual commitments and responsibilities between parties, are the fundamental element of business transactions. The Indian Contract Act, 1872, controls the creation and implementation of contracts in India. Despite the fact that contracts are commonly thought of as written agreements, it’s important to understand that the intentions of the parties involved are crucial to understanding contract law. This article explores the meaning of purpose in contracts under Indian law by looking at pertinent case law, legislative provisions, and legal principles.

1. Concept of Intention in Contract Law

The intention of the parties is emphasised as a crucial component of contract formation in the Indian Contract Act, 1872. The Act’s Section 10 declares that “all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.” This section clarifies that the parties’ purpose in creating legal duties is what makes a contract fundamental.

2. Objective vs. subjective intention

The distinction between objective and subjective intention is important in contract law. Regardless of one’s personal opinions, objective purpose is the intent that can be inferred from the words and actions of the parties by a reasonable person. Subjective intention, on the other hand, relates to each party’s true mental state, which might not always coincide with the objective understanding.

3. Principles Governing Intention in Contracts

3.1 Offer and Acceptance: The intention to create legal relations is evident through the process of offer and acceptance. An offer must indicate a clear intention to be bound by its terms, and acceptance must mirror that intention unequivocally.

3.2 Certainty: Intention requires clarity and certainty regarding the terms of the contract. Ambiguity or vagueness in contractual terms may hinder the determination of the parties’ true intentions.

3.3 Consideration: The presence of consideration is indicative of the parties’ intention to enter into a binding agreement. Consideration refers to something of value exchanged between the parties as part of the contract.

3.4 Capacity: Intention presupposes that parties possess the legal capacity to enter into a contract. Minors, persons of unsound mind, and those disqualified by law lack the capacity to form contracts.

4. Case Laws Illustrating the Importance of Intention

4.1 Balfour v. Balfour (1919): In this landmark case, the court held that domestic agreements between spouses do not typically possess the intention to create legal relations unless there is clear evidence to the contrary.

4.2 Mohori Bibee v. Dharmodas Ghose (1903): The court ruled that contracts entered into with persons lacking contractual capacity are voidable. In this case, the contract was voidable due to the plaintiff’s incapacity, emphasizing the significance of parties’ legal capacity in contract formation.

4.3 Lalman Shukla v. Gauri Dutt (1913): The court reiterated that the intention to create legal relations is a crucial element in contracts. In this case, the defendant’s offer of a reward was not binding as it lacked the intention to be legally bound.

5. Statutory Provisions

5.1 Section 14 – “Free Consent”: This section underscores the importance of free consent in contract formation, emphasizing that consent is not free when obtained through coercion, undue influence, fraud, misrepresentation, or mistake.

5.2 Section 23 – “Consideration”: Consideration is essential for the validity of a contract. This section stipulates that an agreement without consideration is void, except in certain specified circumstances.

5.3 Section 24 – “Agreements void if considerations and objects unlawful”: Contracts with unlawful considerations or objects are void. This provision highlights the necessity of lawful intentions in contract formation.

6. Conclusion

In conclusion, Indian law emphasises the significance of purpose in contracts. The significance of parties’ intents in making legally binding agreements is highlighted by the Indian Contract Act, 1872, and judicial precedents. Every facet of contract creation is influenced by the parties’ intention, whether it is through offer and acceptance, terms that are clear, consideration, or capability. To prevent disputes and preserve the sanctity of contracts in India, parties must make sure that their agreements are legally compliant and that they state their intentions clearly.

Adv. Khanak Sharma

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