Enforceability Of Oral Agreement In India
The Indian Contract Act 1872, section 2(e), defines an agreements as “every promise and every set of promises, forming the consideration for each other is an agreement.”
A promise is essentially an offer or a proposal, made by a person or an entity, towards another. The assent of the other, results in the acceptance of the offer; thereby creating an agreement.
A valid agreement is said to have the essentials of a valid contract, them being:
- Lawful Object
- Lawful Consideration
- Capacity to Contract
It is important to note that all contracts are valid agreements but not all agreements qualify as valid contracts. Thus, a valid and an enforceable agreement is complete and systematic amalgamation of the necessary elements, which are vital to its validity and existence.
Ideally, there are two types of agreements:
- Oral agreements
- Written agreements
Written agreements are any form of agreements, which are reduced to writing, in a particular format. It is the set of promises and terms of an agreement, reduced on paper, in simple composition of text, and is express in nature. Valid written agreements have a greater evidentiary value in the court of law, since it is easier to peruse and understand. It also has easier and greater enforceability in the court of law or in a dispute
Oral agreements, on the other hand, consists of words, gestures, symbols by which one party conveys a promise or a set of promises to another, which, on acceptance by the other party, becomes a valid oral agreement. They maybe express or implied in nature. Valid oral agreements are legally enforceable in the court of law. However, it is not of great evidentiary value as the agreement is understood through the word of mouth and obtained via second hand knowledge. In case of a dispute or a suit, it is a difficult task for the court to ascertain the true nature of facts and terms of the agreement, without the invasion of bias.
Validity of An Oral Agreement
An oral agreement is as equally valid, as a written one. The legality, of an oral agreement, cannot be questioned, if it falls under the ambit of the requirements stated in section 10 of the Indian Contract Act, 1872.
This was substantiated by the Delhi High Court, in the case of Nanak Builders and Investors Pvt. Ltd. vs. Vinod Kumar Alag AIR 1991 Delhi 315, whereby the Court held that even an oral agreement can be a valid and enforceable contract. Therefore, in the strict sense, it is not essential that a contract must be in writing, unless specified by law or the parties themselves contemplate the reduction of terms of agreement to writing.
The same was reiterated by the Supreme Court in the case of Alka Bose vs. Parmatma Devi & Ors [CIVIL APPEAL NO(s). 6197 OF 2000], whereby the Court held that even a sale agreement can be oral and have the same binding value and enforceability, as a written agreement. The agreement should be in tandem with the essentials listed in section 10 of the Indian Contract Act, 1872 and thus, will have the equal force of evidentiary value, as a written one.
Admissibility of Oral Agreement as Evidence
As per the Act of 1872, a valid oral agreement is of value and can be enforced in the court of law. However, it is always difficult to prove the existence or the exact terms of the agreement, in case of dispute.
Furthermore, Section 48 of the Registration Act, 1908, states that all non-testamentary documents duly registered under this Act, and relating to any property, whether movable or immovable, shall take effect against any order, agreement or declaration relating to such property, unless where the agreement or declaration has been accompanied or followed by delivery of possession.
Also, Section 92 of the Indian Evidence Act states that when the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms. However, its proviso (2) makes an exception to that if there is any separate oral agreement as to any matter where the document is silent and the terms are inconsistent, then the oral agreement may be proved valid. And proviso (3) further makes an exception that if there is any separate oral agreement which constitutes a condition precedent to the attaching of any obligation under any such contract, then also oral agreement may be proved.
In the case of S.V. Narayanaswamy vs. Savithramma 2013R.F.A. No. 1163 of 2002 c/w R.F.A.No.1164 of 2002 Karnataka High Court, the Appellant sought to prove the existence of a oral agreement, which was vehemently claimed to exist, with respect to sale of property. With the onus to prove being on the Appellant, it did so, by producing cheques of several amounts, towards the entire consideration of the property. By producing various pieces of evidence, which indicated towards a whole, the court upheld the existence of the oral agreement, based on the scrutiny of the evidence provided.
Thus, oral agreements, although may sound like a bag of quagmire, can be proved in a court of law, through several circumstantial evidence. Even with several witnesses to prove the existence of an agreement, the court is often taken to task to prove and ascertain the terms and conditions of the oral agreements. It is highly likely that personal bias and the parties not being completely ad idem, would affect the validity and question the existence of a valid oral agreement.
In conclusion, oral agreements are legally enforceable in the court of law, or in a dispute. However, it is highly recommended that one should reduce the agreements or contracts to a composition of text. Oral agreements are permissible, but also extremely tricky to prove. It is, and always has been, based on several pieces of evidence, if they all point in one particular direction.