This article has been written by Aditya Sunil Naik, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.This article has been edited by Ruchika Mohapatra (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).
Parties to a contract; act in their best interest when they choose to record the terms of their agreement in writing. This helps ensure that there is no misunderstanding about their rights and obligations under the agreement. By having the terms recorded and agreed upon, usually with a signature, it is made clear that the parties consent to be bound by the agreement.
Having a written contract also has benefits when a dispute arises between parties. Provided that the agreement is duly stamped, it can be admitted as evidence for any purpose by any person having the authority to receive evidence by law or the consent of parties. Further, if an agreement is required to be registered under Section 17 of the Registration Act, 1908 or the Transfer of Property Act, 1882, it must be registered failing which it cannot be admitted as evidence.
From the above, it is clear that the agreement in writing merely reflects the intentions of the parties to a contract and is kept as a matter of record, either for mutual convenience or if required by law. Therefore, the question of consensus ad idem and free consent comes into the picture in this context.
Essentials of a contract
Section 10 of the Indian Contract Act, 1872 (“the Act”) provides that an agreement is a contract if it fulfills the following essentials:
- It is made by the free consent of the parties;
- The parties are competent to contract;
- The agreement is for a lawful consideration;
- The agreement is made with a lawful object; and
- The agreement is not hereby expressly declared to be void.
While the Act does not lay down any other specific requirement for an agreement to be a contract, requirements may be prescribed by other laws. Examples of the stamp duty and registration of certain agreements have been discussed above.
For written contracts, it is a settled principle that the contract must be construed and given effect as it is, even if the result is that the document is found to record a transaction intended by neither of the parties to it. However, if a party to an agreement is told that any stipulation recorded in the agreement would not be enforced, the Court held that he cannot be held to have assented to it. It held that the document does not amount to the real agreement between the parties and the other party cannot sue on it.
Consensus ad idem
Consent is defined under the Act as to when two or more persons agree upon the same thing in the same sense. This “meeting of the minds” is known as consensus ad idem. The Supreme Court has held that the word “thing” must be construed as widely as possible as the whole contents of the agreement, whether it consists, wholly, or in part, of delivery of material objects, or payment, or other executed acts or promises.
Once parties have agreed to a common intention by expressing certain words, they cannot go back on it and deny that what they did was the reasonable interpretation of those words, as has been seen earlier. In a leading English case, Lord Watson held that whoever becomes a party to a written contract “agrees to be bound, in case of dispute, by the interpretation which a Court of law may put upon the language of the instrument,” whatever meaning he may attach to it in his own mind. Therefore, it is clear that courts place very strict reliance on written contracts and would interpret the same by what is contained in it.
The exceptions to this are in the following situations:
It is possible to avoid the enforcement of an agreement if it can be proved that a term is ambiguous and as a result of this ambiguity, there is a misunderstanding without either party’s fault. However, it is quite unlikely that such a scenario arises in a written agreement as the terms are well-defined and reviewed before execution.
2. Fundamental error
While there may be consent and all other essentials fulfilled, the consent may have been given under a mistake, which the party is not prohibited from showing. The mistake must be such that it must prevent any real agreement upon the same thing in the same sense. Such a fundamental error may pertain to the nature of the transaction, the person being dealt with, or the subject matter of the agreement.
The Act provides that consent is said to be free when it is not caused by:
- coercion, as defined in Section 15; or
- undue influence, as defined in Section 16; or
- fraud, as defined in Section 17; or
- misrepresentation, as defined in Section 18; or
- mistake, subject to the provisions of Sections 20, 21 and Section 22 in The Indian Contract Act, 1872.
Free consent is essential to a valid contract that is enforceable by law. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free, as given in the sections stated above.
Foreign language in a contract
From the above discussion, it is clear that there has to be a meeting of minds between the parties to a contract for it to be enforceable and that such a consensus must be a result of the free will of the parties. Now that the fundamentals are clear, we shall examine the question of the use of foreign language in a contract.
The doctrine of non est factum is available to a party who claims to avoid a contract, which essentially means that the party intended to sign a contract that was wholly different from the one signed. In such a case the contract is void, and not voidable. The transaction is invalid not merely due to fraud, but because the “mind of the signer did not accompany the signature” and he never intended to sign. This, however, is a very limited defence available in select situations. It is the exception to the rule that a party is bound by the contract they sign, irrespective of whether they bothered to read all the terms and conditions.
A party cannot claim to avoid a condition in a contract executed by him in print on the basis that he did not read it or that it was written in a language that he did not understand. In the case of the latter, the onus is on the party to ask for the terms to be explained in a language he understands. The fact that the party does not know the language in which the contract was executed does not necessarily raise a presumption that he did not understand the terms contained therein. Moreover, if there are circumstances to show that the party understood the contents of the contract, there is a valid contract.
However, such a condition can be avoided only in the case where he proves that he signed the contract on the assurance that he would not be bound by that condition. In a case, before the Privy Council, it was held that where a party had signed a contract and was told that a stipulation contained in it would not be enforced, that party cannot be said to have assented to it, and consequently, the contract did not represent the true agreement arrived between the parties.
Literate persons, especially businesspeople, are expected to read and understand the terms of the contract before signing since their money is involved in it. In such a case, the contention that the document was not read would not be accepted. The House of Lords laid down that the defence of non est factum was not to be allowed where a person of full age and capacity had signed a written document embodying the contract. It would be allowable so long as the person signing the document had made a fundamental mistake as to the character or effect of the document.
However, there are certain protections available for the benefit of differently-abled persons, senior citizens, and illiterate persons. If a differently-abled person executes a document without understanding its terms, there is no real consent, as his mind did not accompany execution. In such a case, the transaction is valid only if the document is read over to the executant and he understands it.
The Supreme Court has held that where the document is in a foreign or alien language, the person seeking to rely on the document will have to prove that the document was read over and properly explained to the executant so as to make him understand the consequences of it. These principles are applicable to pardanashin women and would be applied to documents made by old, invalid, infirm, and illiterate persons.
Therefore, from the above discussion, it is clear that as a general rule, having a contract in a different language from what the party understands does not affect its validity. This is because of the general presumption that the party is expected to go through the contract and understand the terms before executing it. However, exceptions apply in cases where a party is misled and was made to sign a contract wholly different from what was represented. Also, protections apply to certain classes of persons discussed above to ensure that they are not duped. From a practical standpoint, it may be advisable to draft and execute a contract in a language that can be understood by the party to avoid any misunderstanding or dispute.
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