Essential Elements Of A Valid Contract

An agreement enforceable by law is a contract. An agreement in order to be enforceable must have certain essential elements. According to Section 10 - All agreements are contracts if they are made by the free consent of the parties competent to contract, f or a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Thus, an agreement becomes a valid contract if it has the following elements.

1) Proper offer and its proper acceptance

2) Intention to create legal relationship

3) Free consent

4) Capacity of parties to contract

5) Lawful consideration

6) Lawful object .

7) Agreement not expressly declared void

8)  Certainty of the Terms of the contract

9) Possibility of performance

10) Legal formalities

 

1) Proper of f er and its proper acceptance :-

In order to create a valid contract it is necessary that there must be at least two parties, one making the offer and the other accepting it. The law has prescribed certain rules f or making the offer and its acceptance that must be satisfied while entering into an agreement. For example, the offer must be definite and duly communicated to the other party. Similarly, the acceptance must be unconditional and communicated to the offer in the prescribe mode, and so on. Unless such conditions with regard to the of f er and the acceptance are satisfied the agreement does not become enforceable.

Example :- Example: Mr.Nayan who owns two Maruti cars of different colors namely red and white intends to sell his red car. But Miss, Athiral thinks she is purchasing the white car. In this situation, there is no consensus-ad-idem and consequently there is no contract.

 

2) Intention to create legal relationship :-

Whenever parties make an agreement, their must be an intention to create a legal relationship between them. If such intention is not present, there is no contract between the parties. In case of social or domestic agreements,parties do not contemplate legal relationship, as such these are not contracts. [Balfour Vs. Balfour (1919) 2 K.B. 571]

Case Study :- r. Mr. Balfour had promised to pay £30 per month to his wife living in England when she could not accompany him to Caulon where he was employed. Mr. Balfour failed to pay the promised amount. Mrs. Balfour filed a suit against her husband f or breach of this agreement.It was held that she could not recover the amount as it was a social agreement and the parties never intended to create any legal relations. In commercial. or business transactions the usual presumption is that the parties intend to create legal relations.

Example :- “X” offers to play cards with “Y” f or pleasure and “Y” accepts. If later on,

“X” ref uses to do so,”Y” cannot go to the court f or enforcing the promise.

 

3) Free consent :-

For a contract to be valid, it is essential that there must be free and genuine consent of the parties to the contract. They must have made the contract of their own free will and not under any f ear or pressure.

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. In case the consent is obtained by any of the first four factors, the contract would be voidable at the option of the aggrieved party.

But if the agreement is induced by mutual mistake which is material to the agreement, it would be void.

Example :- ’A’ threatens to beat “B” if he does not sell his land f or a low price agrees to do so. The agreement has been brought about by coercion.Hence voidable at the

option of "B".

 

4) Capacity of parties to contract :-

: The parties to an agreement must be competent to contract i.e., they must be capable of entering into a contract. If any party to the contract is not competent to contract, the contract is not valid. Now the question arises as to who are competent to contract?

Answer to this question is provided by Section 1 I 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. Hence in order to be competent to enter into a contract, the person should be a major (adult), should be of sound mind and he must not be declared disqualified from contracting by any law to which he is subject. Thus, the f law in capacity may be due to minority, lunacy, idiocy, etc. If a party to a contract suffers from any of these f laws, the agreement, with a few exceptions, is not enforceable at law.

Example :- : A, a minor, borrows Rs. 5,000 from B and executes a promissory note in B’s

favour. After attaining majority A executes a fresh promissory note in favour of B f or this amount. B cannot sue on this promissory note as the agreement is void for lack of consideration.

5) Lawful consideration :-

: An agreement must be supported by consideration. Consideration

means something in return. It is also defined as the price paid by one party to buy the promise of the other. However, this price need not always be in terms of money. For\' example, A agrees to sell his book to B f or Rs. 20. Here the consideration f or A is Rs. 20, and f or B it is the book.

The consideration may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something, The consideration may be past, present or future,consideration must be real i.e., it must have some value in the eyes of law. However, the consideration need not be adequate. For example, A sells his car worth Rs. 50,000 to B f or Rs. 10,000 only. This is a valid promise provided the consent of A is free.

For a contract to be valid, the consideration.should also be lawful. The consideration is considered lawful unless it is forbidden by law, or is fraudulent, or involves or implies injury to the person or property of another; or is immoral, or is opposed to public policy (Section 23).

Example :-  X lets his house f or being used as a gambling den. The agreement is illegal as the object of agreement is unlawful.

6) Lawful object :-

: The object of the agreement must be lawful. It is considered unlawful if it is (i) illegal (ii) immoral, (iii) fraudulent, (iv) of a nature that, if permitted, it would def eat the provisions of any law, (v) causes injury to the person or property of another, or (vi) opposed to public policy.

For example: A promises to obtain a job f or B in government service in consideration of Rs.

50,000. The agreement is void because it is forbidden by law.

7) Agreement not expressly declared void :-

The agreements must not have been expressly declared to be void. Following agreements are expressly declared to be void under the Indian Contract Act:

a. Agreement in restraint to marriage (Sec.26)

b. Agreement in restraint to trade (Sec.27)

c. Agreement in restraint to legal proceedings (Sec.28)

d. Agreement having uncertain meaning (Sec.29)

e. Wagering agreement (Sec.30)

For example, A agreed to pay Rs. 1,000 to B if he (B) does not marry throughout his lif e. B promised not to marry at all. This agreement shall not be valid because it is in restraint of marriage which has been expressly declared void under Section 26. You should note that if an agreement possesses all other essential elements of a valid contract but belongs to the category of such agreements that have been expressly declared void by the Contract Act, no power on earth can make it a valid contract.

8)  Certainty of the Terms of the contract :-

Section 29 of the Contract Act provides that Agreements, the meaning of which is not certain or capable of being made certain, are void. Thus to make a valid contract it is absolutely essential that its terms must be clear and not vague or uncertain.

Example:- A agreed to sell 100 tonnes of oil to B. Here it is not clear what kind of oil is intended to be sold.

Therefore, this agreement is not valid on the ground of uncertainty. If , however, the meaning of the agreement could be made certain from the circumstances of the case, it will be treated as a valid contract. In the example given above if we know that A and B are dealers in mustard oil only, then the agreement shall be enforceable because the meaning of the agreement could be easily ascertained from the circumstances of the case.

 

9) Possibility of performance of an agreement :-

The terms of the agreement must also be such as are capable of performance. An agreement to do an act which is impossible in practice cannot be enforced.

Example: When A agrees with B to f ind a treasure the agreement is void as it is impossible of performance.

10) Legal formalities :-

: If any legal formalities of writing, registration, etc. are necessary by law, these must be satisfied. In the absence of these legal formalities, agreements will not be enforceable in courts of law.

Contracts which must be registered

(i) A promise made without consideration on account of natural love and affection between parties standing in near relation to each other.

(ii) Documents of which registration is compulsory under Sec.17 of the Registration Act, 1908.

(iii) Contracts relating to the transfer of immovable properties under the Transfer of Property Act 1882.

(iv) Memorandum and Articles of Association, debentures, mortgages and charges under the Companies Act, 2013. 

Example :- Where it requires an agreement to make a gift for natural love and affection, there it must be in writing and registered to be valid.