Essentials of a valid contract

Table of Contents

Introduction:

A contract is an agreement made between two or more parties to do or to abstain from doing a particular act. It invariably creates a legal obligation between the parties by which certain rights are given to one party and a corresponding duty is imposed on the other party. Each contract creates a binding duty on the contracting parties. The law relating to contract is regulated by the Indian Contract Act,1872 which deals with the enforcement of these rights and duties upon the parties.

Meaning and definitions of contract:

The word contract was derived from the Latin word “Contractum” which means drawn together or to conclude a bargain. The contract is an exchange of promises by two or more persons resulting in an obligation to do or refrain from doing a particular act, which obligation is recognized and enforced by law.

According to Salmond “contract is an agreement creating and defining the obligation between the parties”, and according to Sir Fredrick pollock “every agreement and promise enforceable at law is a contract” in the words of Sir William Anson “ a contract is an agreement enforceable at law made between two or more persons by which rights are acquired by one or more to acts or forbearances on the part of others”.

And section 2(h) of the Contract Act defines a contract as “an agreement enforceable by law”.

Essentials elements of a valid contract:

All contracts are agreements but all the agreements are not contract, an agreement becomes a contract only when it fulfills the essential conditions which are laid down in the Indian contract Act,1872. Those are as follows :

1. Offer and Acceptance:

The first essential for creating a contract is a valid offer or proposal. The Contract Act defines proposal as ‘when one person signifies to another his willingness to do or abstain from doing anything to obtain the assent of that other to such act or abstinence, he is said to make proposal’.

The person who proposes is the promisor/offeror and the person accepting the proposal is called the promisee/ offeree. An offer to be valid must fulfill certain conditions such as, it must intend to create a legal obligation, its terms must be certain and unambiguous and it must be communicated to the person to whom it is made.

Secondly, the offer must be accepted and accepted by the person to whom it was intended. It is only after the acceptance of the proposal that a contract between the parties can arise. When this proposal is accepted it results in an agreement. To be a valid acceptance it must have certain conditions such as :

It must be absolute and unqualified
It must be in a prescribed manner
It must be communicated by an authorized person before the offer lapses.

Apart from these, there must be consensus ad idem which means a meeting of minds. i.e the parties on the contract should accept the terms of the contract in the same sense.

2. Intention to create legal obligation :

The parties which are forming an agreement must have an intention to create a contract. There must be involvement of legal obligation and both parties must be aware of the legal consequence. Those contracts where there are no legal obligations involved such contracts are not enforceable by law such as the social or domestic agreement with family, relatives, and friends. etc

3. Consideration :

It constitutes the very foundation of the contract, an agreement that is not supported by consideration is void. Consideration is the cause of the promise and its absence would make the promise a gratuitous or bare promise(nudum pactum). To be a valid consideration it must fulfill certain conditions they are :

It must be an act of abstinence or promise
It must be lawful
It must be real and not vague, indefinite, or illusory, etc.

The general rule is that an agreement without consideration is void, but there are certain exceptions to this rule which are being provided under Section 25 of the Act.

4. Capacity of parties:

The parties to an agreement must be competent to contract i.e they must be capable of entering into a contract. Section 11 of the Act provides that a person who has not attained the age of majority, who is of unsound mind, and a person who is disqualified from entering into a contract by any law are considered as not competent to enter into any contract.

In Mohari Bibee v. Damodar Ghosh, the court held that an agreement entered by a minor is void ab initio.

5. Free consent:

To be a valid contract it is essential for the contract that parties must consent to the contract and they must give the consent freely, it is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.

6. Legality of object:

The object of an agreement must be lawful, if the object of an agreement is unlawful or if the object of an agreement is prohibited by law then such agreement will not be valid and are unenforceable.

7. Certainty:

The terms of the agreements must be clear, certain, and not vague. Any uncertain agreements are considered to be void. In Guthing v. Lynn, a horse was brought for a certain price with a promise to give 5 pounds more if the horse proved lucky. The agreement was held to be void for uncertainty. Thus to be a valid contract its terms must be clear and not vague or uncertain.

8. Agreements have not expressly declared void :

Certain agreements are declared void under the Indian contract Act 1872 which are mentioned in sections 24-30, they are agreements in restraint of marriage, agreements in restraint of legal proceedings, agreements in restraint of trade, and wagering agreements. If an agreement possesses all other essential elements of a valid contract but it belongs to the category of such agreements that have been expressly declared void by the contract Act then it is not a valid contract.

Conclusion :

A contract is an agreement that is enforceable at law, an agreement becomes enforceable at law only when it fulfills some conditions, these conditions may be called as essentials of a valid contract, these are the most essential and basic elements for the formation of contracts that are to be satisfied to make a contract valid if any of the essential elements are missing the contract is either void, voidable, illegal or enforceable in the eye of law.

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Author: Naveen Talawar,
Student at Karnataka state law university's law school