What are the essentials of a valid contract?

Question: What are the essentials of a valid contract? [Punjab JS 2007]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [What are the essentials of a valid contract?]

Answer

An agreement is regarded as a contract when it is enforceable by law. The conditions of enforceability are stated in Section 10 of Indian Contract Act. According to this section, an agreement is a contract when it is made for some consideration, between parties who are competent, with their free consent and for a lawful object.

Section 10 of the Indian Contract Act defines what agreements are contracts.

It states:

“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.”’

So following essentials are needed for a valid contract:

1. An agreement between the two parties. An agreement is the result of a 'Proposal’ by one party followed by “Acceptance” by the other.

To get started for a contract, there must be an offer from either side of the party, without the offer a contract cannot be formed. There must be an offer from one party and acceptance from the other party. The offer and acceptance must be ‘lawful’ which means it must meet the requirement of the Contract.

2. The agreement should be between parties who are competent to contract. [Sections 11 and 12]

Parties must be capable enough to enter into a Contract i.e., competent to contract. Every party is competent to contract if he fulfils the requirement given under Section 14 of the Indian Contract, 1872.

These determinants are:

1. A person should attain the age of majority i.e., 18 years. If the contract is done with the minor then the contract will become void
2. The party should be of sound mind (sane mind).
3. He/ she is not disqualified from contracting by any Law to which he is subject, want of capacity may thus arise from minority, lunacy, idiocy, drunkenness etc. If any of the parties to a Contract suffers from such disability, the agreement is not enforceable excepting perhaps in some

3. There should be a lawful consideration and lawful object of that agreement. [Section 2{d) and 25] [Section 23-30]

Consideration is defined as “A valuable Consideration in the perception of law may comprise either in certain Rights, Interest, Profit or Benefit accumulating to one gathering or some avoidance disservice, misfortune or duty given, suffered or attempted by the other” by the court in the case of Currie v. Misa [(1874) LR 10 Ex 153].

Consideration in layman language means something in return for something. To make a valid Contract enforceable by law it should have Lawful Consideration. Consideration means a benefit granted for the fulfilment of a promise. It need not significantly be money; however, it should be something that has been acknowledged by the parties and has some significance.

According to Section 25 of the Indian Contract Act: A contract without consideration is void. However, there are certain considerations that are unlawful and are specified under Section 23 of the Indian Contract Act.

Further, the object must be lawful in other words we can say that it should not be illegal, immoral, or against the policy of the law. Every agreement which contains unlawful objects results in the formation of a void contract.

4. There should be free consent of the parties when they enter into the agreement. [Section 13-22]

This means parties that are entering into a contract should do it with their will without the external factors or forces. Section 14 of the Indian Contract Act, 1872 defines a contract entered with free consent as a valid contract and if affected by some other factors then, would believe a contract invalid.

These factors are defined by the Indian Contract, 1872: –

1. Coercion: It is defined under Section 15 of the Indian Contract Act, 1872 which means committing any act which is forbidden by law defined under the Indian Penal Code or unlawful to confine of property, or frightening to commit such acts.

The act should be harmful to the other party and some legal action may arise out of it. e.g.: A husband forces her wife that if she will not sign the property papers, he will throw acid on her. This is amounting to coercion and a contract signed under coercion amounts to an invalid contract.

2. Undue influence: It is defined under Section 16 of the Indian Contract Act, 1872 which means one party uses its dominant position over the party and tries to obtain an advantage out of it by influencing. Such examples are the relationship of employer-employee, principle-agent relationship.

Furthermore, it says that the person who is in the position to dominate the will of the other party present has to prove that the contract entered by the parties was not by undue influence. Hence, it defines upon whom the burden of proof will fall. e.g.: A doctor is in the dominant position with relation to the patient, here, the doctor influences the patient to sign papers for the operation.

3. Fraud: It is defined under Section 17 of the Indian Contract Act, 1872 which means when the terms which are presented by one party in front of the other party are to cause damage, with ill-will and to gain advantage out of it. Presenting a false statement, hiding any fact, fake promises made without the intention to perform such act, acts done to deceive the other party- such acts will constitute fraud if done with the intention to doing it so.

4. Misrepresentation: It is defined under Section 18 of the Indian Contract Act, 1872 which means presenting the false representation of facts without the wrong intentions or to deceive the other party. In misrepresentation, the party is innocent and has done the act without knowing it.

5. Mistake: Mistake of Fact or Mistake of Law is defined under Section 20 and 21 of the Indian Contract Act, 1872. If any mistake (fact or law) done by either or both the parties will lead to an invalid contract

5. The agreement must not be one, which has been expressly declared to be void.

The agreement must not contain certain elements that result in making the contract void. Certain agreements are declared void under the Indian Contract Act, 1872 which are given below:

1. Agreement in restraint to marriage (Section 26).
2. Agreement in restraint of trade (Section 27).
3. Agreement in restraint of legal proceedings (Section 28).
4. Agreement having uncertain meaning (Section 29).
5. Wagering Agreement (Section 30).

6. The Intention of Creating a Legal Relationship:

Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X