Essentials of a valid Contract

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Essentials of a valid contract.

What is a contract?

A contract is an agreement that can be enforceable by law. An agreement is an offer

and its acceptance. An agreement which can be enforceable by law must have some
essential elements. According to Section 10 "All agreements are contracts if they are
made by the free consent of the parties competent to contract, for a lawful consideration
and with a lawful object, and are not hereby expressly declared to be void" As per the
above section, a contract must have the following elements.

1. Intention to create legal relationship.

2. Lawful object

3. Agreement not expressly declared void

4. Proper offer and it s acceptance

5. Free Consent

6. Capacity of parties to contract

7. Certainty of meaning.

8. Possibility of performance.

9. Lawful consideration

10. Legal formalities

Intention to create legal relationship: The parties entering into a contract must have an
intention to create a legal relationship. If there is no intention to create a legal
relationship, that agreement cannot be treated as a valid contract. Generally there is no
intention to create a legal relationship in social and domestic agreements. Invitation for
lunch does not create a legal relationship. Certain agreements and obligation between
father and daughter, mother and son and husband and wife does not create a legal
relationship. An agreement wherein it is clearly mentioned that "This agreement is not
intended to create formal or legal agreement and shall not be subject to legal jurisdiction
in the law of courts." cannot be treated as a contract and not valid.

Lawful Object: The objective of the agreement must be lawful. Any act prohibited by
law will not be valid and such agreements cannot be treated as a valid contract. A rents
out his house for the business of prostitution or for making bomb, the acts performing
there are unlawful. Hence such agreement cannot be treated as a valid contract. Therefore
the consideration as well as the object of the agreement should be lawful.

Agreement not expressly declared void: Section 24 to 30 specify certain types of

agreement which have been expressly declared void. For example Restraint of marriage
which has been expressly declared void under Section 26. If John promises to pay $50 to
Mary if she does not marry throughout her life and Mary promise not to marry at all. But
this agreement cannot be treated as a valid contract owing to the fact that, under section
26 restraint of marriage expressly declared void. Some of the agreement which have been
expressly declared void are agreement in restraint of legal proceedings, agreement in
restraint of trade, agreement in restraint of marriage and agreement by way of wager.

Proper offer and it s acceptance: To create a valid contract, there must be two or more
parties. One who makes the offer and the other who accepts the offer. One person cannot
make an offer and accept it. There must be at least two persons. Also the offer must be
clear and properly communicated to the other party. Similarly acceptance must be
communicated to the other party and the proper and unconditional acceptance must be
communicated to the offerer. Proper offer and proper acceptance should be there to treat
the agreement as a contract which is enforceable by law.

Free Consent: According to section 14, consent is said to be free when it is not caused
by (i) coercion, (ii) undue influence (iii) fraud, (iv) misrepresentation, or (v) mistake. If
the contract made by any of the above four reason, at the option of the aggrieved party it
could be treated as a void contract. If the agreement induced by mutual mistake the
agreement would stand void or canceled. An agreement can be treated as a valid contract
when the consent of the parties are free and not under any undue influence, fear or
pressure etc. The consent of the parties must be genuine and free consent.

Capacity of parties to contract: Parties entering into an agreement must be competent

and capable of entering into a contract. If "A" agrees to sell a Government property to B
and B agrees to buy that property, it could not treated as a valid agreement as A is not
authorized or owner of the property. If any of the party is not competent or capable of
entering into the agreement, that agreement cannot be treated as a valid contract.
According to Section 11 of the Act which says that every person is competent to contract
who is of the age of majority according to the law to which he is subject and who is of
sound mind, and is not disqualified from contracting by any law to which he is subject.
So it is clear that the party must be of sound mind and of age to enter into a valid
agreement which can be treated as a valid contract.
Certainty of meaning: Wording of the agreement must be clear and not uncertain or
vague. Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind of oil is
not mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the
meaning of the agreement can be made certain by the circumstances, it could be treated
as a valid contract. For example, if John and Mathew are sole trader of coconut oil, the
meaning of the agreement can be made certain by the circumstance and in that case, the
agreement can be treated as a valid contract. According to Section 29 of the Contract Act
says that Agreements, the meaning of which is not certain or capable of being made
certain, are void.

Possibility of performance: As per section 56, if the act is impossible of performance,

physically or legally, the agreement cannot be enforced by law. There must be possibility
of performance of the agreement. Impossible agreements like one claims to run at a speed
of 1000km/hour or Jump to a height of 100feet etc. would not create a valid agreement.
All such acts which are impossible of performance would not create a valid contract and
cannot treated as a valid contract. In essence, there must be possibility of performance
must be there to create a valid contract.

Lawful consideration: An agreement must be supported by a consideration of something

in return. That is, the agreement must be supported by some type of service or goods in
return of money or goods. However, it is not necessary the price should be always in
terms of money. It could be a service or another goods. Suppose X agrees to buy books
from Y for $50. Here the consideration of X is books and the consideration of Y is $50. It
can be a promise to act (doing something) or forbearance (not doing something). The
consideration may be present, future or can be past. But the consideration must be real.
For example If John agrees to sell his car of $ 50000 to Peter for $20000. This is a valid
contract if John agrees to sell his car not under any influence or force. It can be valid only
if the consideration of John is free. An agreement is valid only when the acts are legal.
Illegal works like killing another for money, or immoral works or illegal acts are cannot
be treated as a valid agreement. So, illegal works will not come under the contract act.

Legal formalities: The contract act does not insist that the agreement must be in writing,
it could be oral. But, in some cases the law strictly insist that the agreement must be in
writing like agreement to sell immovable property must be in writing and should be
registered under the Transfer of Property Act, 1882. These agreement are valid only
when they fulfill the formalities like writing, registration, signing by the both the parties
are completed. If these legal formalities are not completed, it cannot be treated as a valid
contract.

Most important essentials of a valid contract are mentioned above. These elements should
be present in a contract to make it a valid contract. If any one of them is missing we
cannot treat that agreement as a valid contract.
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Agreements and contracts are two different things. It is

important to know first
what constitutes a contract and what constitutes an
agreement. We will then study
which agreements are contracts, their distinction
different types of agreements and
contracts.
Essentials Elements of a Valid Contract:

1. Proposal and acceptance

2. Consideration -- lawful consideration with a lawful object
3. Capacity of parties to contract -- competent parties
4. Free consent
5. An agreement must not be expressly declared to be void.
6. Writing and Registration if so required by law
7. Legal relationship
8. Certainty
9. Possibility of performance
10. Enforceable by law.

Proposal and Acceptance:

When one person signifies to another his willingness to do or 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.
The first step towards creating a contract is that one person shall signify or make a
proposal or offer to the other, with a view to obtaining the acceptance of that
another person to whom the offer is made. A proposal when accepted becomes a
promise.

When the person to whom the proposal is made signifies his assent thereof the
proposal is said to be accepted. A proposal when accepted becomes a promise.

Consideration:
When at the desire of the promisor the promisee or any other person has done or
abstained from doing, or does or abstains from doing or promises to do or to
abstain from doing something such act or abstinence or promise is called a
consideration for the promise.
Every contract consists of two parts - (1) Promise and (2) Consideration for the
promise. A promise is often made in return for a promise for example a buyer
realizes the goods for the price. Price for goods is therefore, consideration here.

Consideration is the cause of the promise. It is the most essential element of the
contract. As a general rule, agreement without consideration is void. The promise
for a promise in return is consideration.
Illustrations:
A agrees to sell his house to B for Rs 10,000. Here A's promise to sell his house is
for B's consideration to pay Rs 10,000. Similarly B's promise to pay Rs 10,000 is for
A's consideration to sell his house to B.
An agreement is a contract, only if it is made for a lawful consideration and with a
lawful object.
The consideration or object of an agreements is unlawful if ---
(1) it is forbidden by law; or
(2) is of such a nature that, if permitted it would defeat the provisions of any laws
(3) is fraudulent; or
(4) involves or implies injury to the person or property of another
(5) the court regards it as immoral or opposed to public policy
In each of these cases, the consideration or object of an agreement is said to be
unlawful. Every agreement if which the object or consideration is unlawful is void.

Capacity of parties to contract -- Competent parties:

Every person is competent to contract who is of the age of majority according to
the law to which he is subject, and who is of sound mind, and is not disqualified
from contacting by any law to which he is subject.

Free Consent:
Parties to a contract must give their consent. The parties must be ad idem, for
example both the parties must agree upon the same thing in the same sense. Two
or more persons are said to consent when they agree upon the same thing in the
same sense. Mere consent is not enough. Consent of parties must be free, for
example it must not have been obtained (1) coercion, (2) undue influence, (3)
fraud, (4) misrepresentation, or (5) mistake.

An agreement must not be expressly declared to be void :

A void agreement is not enforceable by law (Sec 2(g)). It has no legal sanctity. It
does not give rise to any rights and obligations. Various agreements are expressly
declared void under the Act.

Writing and registration:

Oral contract is a valid contact. However the contract must be in writing and
registered, if so required by any law, for example, gift, mortgage, sale, lease under
the Transfer of Property Act 1882, Memorandum and Articles of Association of a
Company under the Indian Companies Act, contracts under sub sections (10 and 3)
of section 25 of the Indian Contract Act, etc. Documents specified under section 17
of the Indian Registration Act, 1908, are required to be registered.
No particular form of writing is required to constitute a contract. Intentions of the
parties to enter into a particular contract and to give effect to it must be manifest in
it, in order to constitute a valid contract.

Legal relationship:
Agreements which create legal relations or are capable of creating legal relations
are contracts, for example, an invitation to a dinner does not create any legal
relation and therefore is not a contract.

Certainty:
The terms of a contract should be clear. In other words, the contract must not be
vague. Contracts which are vague cannot be enforced.

Possibility of performance:
Contracts based on impossibility of performance are not valid. The contracts must
be capable of being performed.

Enforceable by Law:
A contract in order to be valid must be enforceable by law which element
distinguishes agreement and contract. It is enforceable by law it is contract
otherwise it is an agreement. The aggrieved party should be able to obtain relief
through law in the event of breach of contract. An agreement can also be inferred
from correspondence exchanged between the parties.

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