Introduction:
An Agreement is a promise between two entities creating mutual obligations by law. Section 2(e) of the Indian Contract Act, 1872 defines an agreement as ‘Every promise and every set of promises, forming the consideration for each other, is an agreement.[1]
To form an agreement, the following ingredients are required:
- Parties: In order to make an agreement, there must be two or more parties.
- Offer/Proposal[2]: When a person expresses his or her desire to do or refrain from doing something in order to get the approval of another.
- Acceptance[3]: When the individual to whom the proposition is made expresses his agreement to the same thing proposed by the offeror in the same sense.
- When a proposition is accepted, it turns into a promise.
- Consideration[4]: It’s the cost of keeping a commitment. It is the reward for one’s deeds or omissions.
Unsigned Agreement
There is a common misconception that a contract that isn’t signed isn’t a contract at all and can’t be enforced. However, because it is the normal commercial practice to enter into agreements without signing them, we emphasise the most important problems to consider when doing so.
Prior to Entering into a Commercial Agreement
Commercial parties frequently correspond with one another in the course of negotiating and determining the terms of a contract, and either:
- Develop and draught a formal written contract that reflects the parameters of the agreement;
- Either sign the official written contract or neither party sign the formal written contract;
- Either the parties fulfil their obligations or they do not engage in business with each other.
There is No Contract in Writing
There isn’t always a necessity for a written agreement. There may be a binding agreement if the parties have finalized all of their major conditions of the bargain and there is no clear term stating that the terms are only binding on a signed formal contract. However, if there is still a dispute over some of the important terms, an agreement will not be reached. The existence of the agreement will not be jeopardized by the anticipation that some features of the agreement will be expounded upon.
Both Parties do not Sign the Formal Contract
Despite the fact that the parties have totally agreed on all of the provisions of their agreement and have no intention of departing from them, they have made the performance of the agreement conditional on the signature of a formal instrument. In this case, even if no formal contract has been signed, the courts are likely to find that an agreement has been reached and will mandate the particular performance of the deal. This could even be the case if the price hasn’t been set yet. As previously stated, if fundamental terms have not been agreed upon, there will be no agreement. An agreement does not exist, however, if the parties clearly intend not to make a finished transaction unless and until a formal contract is executed. Even if the contents of the written agreement match a party’s intended terms, the purpose must be evident that a party has reserved the ability to withdraw from the bargain before signing it.[5]
Evidence that an Unsigned Contract is Enforceable
The following are some of the important indicators that an unsigned agreement is enforceable:
- All of the agreement’s essential elements had been agreed upon, and the deal was no longer up to negotiation;
- The issuance of an unsigned final contract by one party may be accepted by the other party’s signature;
- The parties acted as though the agreement was intended to be legally binding.
Steps to Ensure that a Contract is Only Enforceable After it Has Been Executed
If you want to make sure that an agreement isn’t legally enforceable until you sign a formal contract, we recommend that you:
- You specifically state in your negotiations that there is no binding contract and no agreement of terms unless you are presented with a formal contract and sign it;
- Do not express in your communications to the other party that you agree to the terms suggested or presented to you;
- You don’t act or behave as if the party’s conditions have been agreed upon, and you’re operating in accordance with or compatible with those terms;
- If you’re unsure if an unwritten agreement will be enforceable, inform the other party right away that any terms of the offer made under the agreement are expressly withdrawn by you.
In India, an Unsigned Agreement is Valid or Not
An agreement must be signed by the party against whom the agreement is being enforced if it is in writing. If there is no signature, it might be argued that the offer was not accepted, and hence no agreement exists.
The agreement must be written and signed by both parties, which is one of the requirements that is notably missing. As a result, it is conceivable to reach a legally enforceable oral agreement or one that can be inferred or assumed from the acts of the parties concerned. Understanding the legality of unsigned contracts, on the other hand, is a different storey. The safest and most reliable approach to safeguard the terms of any contractual agreement is to have it written down and signed by all parties concerned. As long as nothing can be written down, an oral agreement is legitimate. A treaty must be proposed and approved before it can be signed. And the so-called oral convention for the verbal agreement should come with some limitations. The validity of the oral agreement cannot be contested. The Court’s legal analysis, which served as the decision’s foundation, is, nonetheless, generative. If the need for a written agreement is established in an arbitration agreement, the need for a written agreement follows. If a written agreement is required and is specified in an arbitration agreement, the agreement must be in the form of a valid contract. The absence of a party’s signature on the contract would be strong evidence of that party’s rejection of the agreement and, as a result, any compromise clause included in it.. “according to the document. Signatures, on the other hand, may not be necessary if the evidence supports a conclusion of the parties’ intent to be bound. In other words, unless the opposite side can establish that the parties agreed that the agreement should not be binding until it was actually signed, the agreement can be enforced if the party seeking enforcement can offer additional proof that the parties did have an agreement on the terms.
In the case of Sheela Gehlot vs. Sonu Kochar and Ors.[6], it was held that oral agreements are legitimate and binding, according to the Delhi High Court, and there is no way to dispute them. An oral agreement is valid as long as nothing can be written down. A proposal and approval are required for a treaty to be signed.
Consensus Ad Idem
A situation where everyone completely comprehends a contract and their involvement in it is described by the Latin word consensus ad idem, which means “agreement of the minds.” Many legal systems regard contract consensus or agreement to be a necessary condition of a legitimate contract, arguing that persons who are unaware of or do not understand a contract cannot be held liable for it. The presence of provisions detailing the intricacies of the contract in a written contract is used to demonstrate that a consensus ad idem was achieved during the contract’s formation, as anybody who signs the contract should have read and understood the terms[7]. It’s an agreement among all the persons or groups who sign a contract regarding what the contract means to them. This is the fundamental concept that underpins enforceable contracts because contracts must be enforceable, which necessitates agreement or a meeting of the minds of all parties concerned.
An offer is extended and accepted, and the terms of the offer are worked out when people form a contract. This is when the consensus ad-idem comes into play, as the contracting parties negotiate the minutiae and details in order to establish a contract that everyone is happy with. The contract must involve adequate consideration, i.e., something of value exchanged by all parties, as well as evidence of the ability to assent. The legality of the contract itself is the final criterion for legality; the other elements may be met, but if the contract is for anything illegal, it will not stand up in court.
Ad Idem Equals No Consensus There is No Contract.
In order for a contract to be enforceable, there must be a meeting of the minds, or agreement. As a result, all provisions of the offer must be accepted or there would be no consensus ad idem, and hence no contract. It is impossible to get an objective agreement if the contract’s provisions are obvious ambiguous or uncertain. A contract may appear to be lawful at first glance, but it is actually the consequence of a mistake made by one or both parties. The errors could be due to a misinterpretation of the contract’s provisions or the nature of the contract’s subject matter.
Creating a Convergence of Thoughts
A single clause in a contract does not establish consensus ad idem. A meeting of the minds is established or proven not to exist in some situations, by examining the full breadth of the agreement to see if the parties each fully comprehend enough about the contract for a court to enforce it. Each contract’s inquiry of contract terms and comprehension is unique. There is no single test that can determine if both parties comprehended the provisions of the contract when they signed it.
Example of Not Reaching Consensus Ad Idem
When the parties’ terminology gets jumbled up, it’s an easy example of two parties agreeing to a contract but not agreeing on everything. The buyer approaches the seller with a request to purchase the seller’s stock, with the purpose of purchasing the stock that is now available. The seller believes the bidder is requesting the purchase of the entire company and agrees. While all parties appear to be in agreement with the arrangement, there is no actual understanding because the vocabulary employed, while correct for both sides, does not signify the same thing to each.
The Uncertainty of Consensus Ad Idem
One major flaw in the legal structure of contracts is that it is never feasible to prove with absolute confidence that the parties involved had a true meeting of the minds. When there is a disagreement, the best method to deal with it is to take a systematic approach to determine each party’s intentions in comparison to the contract provisions. The filter used is how the phrases and intents were represented in acts and words in a way that a reasonable person would comprehend them.
In practice, the court must consider a body of precedent and theory when determining the most equitable method of evaluating and assigning the intentions and specifications of every contract under consideration.[8]
Case Laws Related to Unsigned Agreement
State Of Haryana And Anr. vs O.P. Singhal & Co. [9]
M/s. O. P. Singhal and Company, through O. P. Singhal, filed the tender to the Executive Engineer PWD (B&R), Hissar, for the execution of required work. His tender was accepted by the Executive Engineer, and a letter of acceptance was sent to him. However, no formal contract was put into, as required by Article 299 of the Constitution. In the end, the contract was not carried out, and the parties blamed each other for it. M/s. O. P. Singhal & Company filed a complaint on March 3, 1980, seeking recovery of Rs. 4900/- plus interest and an injunction. The State of Haryana and the Executive Engineer filed an application for stay of the suit under Section 34 of the Arbitration Act (hereinafter referred to as ‘the Act’) on the grounds that the contract between the parties contained clause 25-A, which provided for disputes to be referred to an arbitrator appointed by the Chief Engineer, PWD (B&R), branch, Chandigarh. The plaintiff objected to the application, claiming that no contract had been signed and hence the arbitration clause was not applicable.
Brij Mahajan, New Delhi vs Acit, New Delhi[10].
The appeal filed by Assessee Shri Brijmohan Mahajan and corresponding revenue appeal relevant to the assessment year 2003-04 has been taken as a lead appeal for the purposes of adjudication. The CIT(A) granted substantial relief towards additions so made on account of unaccounted investment in property and retained some minor additions which have been carried in the second appeal by the assessee before the Tribunal. The Ld. AR for the assessee, at the outset, submitted that the appeal of the assessee as well as that of revenue requires to be decided in the light of question as to whether the impugned additions and disallowances in appeal can be sustained in the absence any incriminating documents found as a result of the search in a 153A assessment. The Ld. AR thereafter canvassed that none of the additions made in the return filed pursuant to search action is sustainable in law owing to the 6 ITA Nos.4675 to 4677, 4860, 4715 to 4717 4864/Del/2011 fact that in spite of search no incriminating documents/material was found against the assessee. The Ld. AR for the assessee contended that as per the additional grounds of appeal raised by the assessee, the additions made are illegal and bad in law and is without jurisdiction as no incriminating material was found during the course of the search. The Ld. AR asserted that the issue is squarely covered in favour of the assessee by the decision of the jurisdictional High Court passed in the case of CIT-III vs. Kabul Chawla, reported in 380 ITR 573, wherein the Hon’ble High Court has held that if the additions are made not based on any incriminating material found as a result of search operations such additions are not sustainable in the eyes of law. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material.
Conclusion
To put it another way, Section 7 read with Section 2(b) of the Act requires an agreement to send conflicts or some disputes involving defined legal relationships to arbitration. The arbitration agreement must be in writing, although as shown in sub-section (4) Section 7, an arbitration agreement can exist even if it is not signed in specific circumstances foreseen under clauses (b) and (c) of sub-section (4) to Section 7.
References:
[1]Bare act of Indian contract act, 1872
[2] Section 2(a) of Indian Contract act, 1872
[3] Section 2(b) of Indian Contract act, 1872
[4] Section 2(d) of Indian Contract act, 1872
[5]Both parties do not sign the formal contract https://www.afcomlaw.com.au/enforcing-unsigned-agreements/
[6]2006 (92) DRJ 498
[7]Consensus Ad Idem https://qsstudy.com/business-studies/consensus-ad-idem
[8]The uncertainty of Consensus Ad Idem https://www.upcounsel.com/consensus-ad-idem-in-contract-law
[9] AIR 1984 P H 358
[10]SC 27 Dec 2017
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