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Essentials of valid contract

Essentials Elements of a Valid Contract

Essentials of valid contract

Introduction:

Contract is simply an agreement between two or more persons to do something.

It is a legal relationship consisting of the rights and duties of the contracting parties; a promise or set of promises constituting an agreement between the parties that gives each a legal duty to the other and also the right to seek a remedy for the breach of those duties. Contract Act 1872 contains the law relating to contracts. It provides the rules relating to commercial transactions and determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. It is a very important branch of mercantile law.

Meaning and Definition of Contract:

1. Salmond:
Contract is "an agreement creating and defining obligations between the parties".
2. William Anson:
A contract is an agreement enforceable at law, made between two or more persons.
3. Sir Chitty:
Contract is an agreement giving rise to obligations which are enforced or recognized by law.
4. Black's Law Dictionary:
Contract is "an agreement between two or more persons which creates an obligation to do or not to do a particular thing.
5. According to Contract act:
Sec 2(h)
An agreement enforceable by law is a contract.

Relevant provisions:

Sec 2 (h) of contract act 1872.

Essentials of a contract:

There are many essentials or necessaries are provided in section 10 of contract act which define and also distinguish between valid contracts and void or voidable contracts
Here we will analyze them one by one
According to section 10:
"Every agreement is a contract if it is made by the free consent of the parties, competent to contract, for a lawful consideration and with lawful object and not expressly declared to be void in this act"

Now we discuss every ingredient briefly.

1. Parties:

At least two parties, competent to contract are essential to enter into contract.

2. Agreement:

Another essential of contract is the agreement on the same subject-matter in the same sense.
According to sec 2 (a):
When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

(b) Acceptance 

As per Sec 2 (b):
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. When the proposal is accepted it becomes agreement.

Agreement is defined as:

"Sec 2 (e): Every promise or set of promises, forming the consideration for each other is an agreement". 

3. Legal Relationship:

Contracting parties must have intention to make legal relationship. There are agreements which do not result into contract within the meaning of that term e.g where two parties agree to take a walk together would not amount to legal contract.

4. Enforceability:

Contract as defined "An agreement enforceable at law"
Thus to make a contract there must be “an agreement and that agreement enforceable by law”. An agreement enforceable, when it fulfills the conditions which are indicated in sec 10.

5. Free consent:

There are two terms "consent and free consent"

(a) Consent:

As defined in section 13:
"Agreement upon the same thing in the same sense"

(b) Free consent:

As defined in section 14:
A Consent which is not obtained by coercion, fraud, misrepresentation, mistake, undue influence is a free consent.
If it is caused by one of 5 things mentioned above it would not be a free consent.
You may also read about Mistake of fact and law

Case law:

Bala Devi vs Majumdar (1918) 41 Mad. 33
 An illiterate woman executed a deed of gift under the impression that she was executing the deed to her nephew for managing her land.
 The evidence showed that she never intended to execute the gift, nor was the deed ever read or explained to her.It was held that there was not consent.

6. Lawful Consideration:

It is something in return, In other words consideration is reward accepted or given in return for the promise.
According to Pollack:
"Consideration is the price for which promise of another is bought". 
It is essential that consideration must be lawful. What considerations are invalid?
Sec 23 of mentioned act describes briefly that:
  • It is forbidden by law or
  • It is of such nature that, if permitted it would defeat the provisions of any law or
  • It is fraudulent or
  • It involves or implies injury to the person or property of another or
  • It is opposed to public policy.

7. Lawful Object:

The word object means "purpose". In order to make a valid contract its object must be lawful.
The object is unlawful if it cannot be achieved without violation of some law or doing something immoral or opposed to public policy.

8. Capacity of Parties:

As sec 10 states "All agreements are contracts if they are made by free consent of the parties competent to contract". So a valid agreement requires the parties to be competent to contract.
Who is competent to contract?
 Sec 11 defines:
 Every person is competent to contract if he is of the age of majority according to the law to which he is subject, is of sound mind and is not disqualified from contracting by any law to which he is subject.
 So incompetency is caused by three things (a) Minority (b) Unsoundness of mind (c) Status of person according law to which he is subject.

9. Certainty:

Contract must not be uncertain, vague or indefinite. Under sec 29 Agreements the meaning of which is not certain or capable of being made certain are void.

10. Possibility of performance:

A contract must be capable of performance.
Sec 56 lays down that "an agreement to an act impossible in itself is void". If the act is legally or physically impossible to perform the agreement cannot enforceable at Law.

11. Not declared void:

An agreement which is declared void or illegal by law cannot be enforced. It has no legal existence at all neither it gives rise to any rights and obligations.

12. Legal formalities:

Some contract may also require legal formalities such as registration and attestation. 

Conclusion:

A legally binding contract is an agreement between two or more parties that is enforceable by law. To create a legally binding contract, the following elements must be present:
Offer and acceptance: One party must make an offer to enter into a contract, and the other party must accept that offer. The offer and acceptance must be clear and definite.
Consideration: Each party must provide something of value, or consideration, in exchange for the other party's promise. This could be money, goods, services, or something else of value.
Mutuality of obligation: Both parties must be bound to perform their obligations under the contract.
Capacity: All parties must have the legal capacity to enter into a contract. This means they must be of legal age and have the mental capacity to understand the terms of the contract.
Legality: The contract must not be for an illegal purpose or contrary to any law.
It is a good idea to put the contract in writing, as this makes it easier to prove the existence and terms of the contract.

A contract is an agreement which is enforceable at law. An agreement becomes enforceable at law when it fulfills some conditions. These conditions may be called essentials of valid contract. If any of the essential element is missing the contract is either void, voidable illegal or unenforceable in the eye of law.

Relevant questions:

  • What is Contract?
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  • What is contract according to contract act 1872?
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