ESSENTIALS OF A VALID CONTRACT

Section 10 of the Indian Contract Act, 1872 provides "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". 

The essential elements of a valid contract are:

1. An intention to create legal relations or intent to have legal consequence.

2. Free consent between the parties.

3. The parties to contract are legally capable of contracting.

4. The object of the contract is legal and is not opposed to public policy. The agreement is supported by consideration.

5. The agreement must not have been expressly declared to be void under the Act.

6. The terms of the contract are certain.

7. The agreement is capable of being performed, i.e. it is not impossible to perform the contract.

8. Where agreement is required to be in writing under any law it must be in writing; and where both writing and registration are required by some Act or Law, the agreement must be in writing and registered. 

A detailed description of essential elements of a valid contract is given below-

1. Offer and acceptance

There must be a 'lawful offer' and a 'lawful acceptance' of the offer, thus resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto. A contract can only be bilateral. 

2. Intention to create legal relations

There must be an intention among the parties that the agreements should be attended by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate a contract. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the Intention to create legal relationship and thus do not result in contract.

#Balfour v. Balfour- In this case, Mr. & Mrs Balfour who were living in Ceylon went to England. Mrs Balfour fell ill. Mr. Balfour had to come back to Ceylon to join his duties. However he promised to pay 30 pounds per month to his wife. On his failure to pay, Mrs. Balfour sued him for the recovery of the amount. It was held that it was a domestic agreement and the husband never intended to create any legal relations out of it.

In commercial agreements an intention to create legal relations is presumed. Thus, an agreement to buy and sell goods intends to create legal relationship, and hence is a contract, provided other requisites of a valid contract are present. 

3. Lawful Consideration

Consideration means "something in return.’ An agreement is enforceable where each of the parties to it gives something and gets something in return.

For example: If A agrees to sell his house to B for Rs.5 lac, the consideration for A's promise is Rs. 5 lac and B’s promise is a house. Thus consideration is the price paid by one party for the promise of the other. The payment of money is the common form of consideration. But it may also consist of an act, forbearance, a promise to do or not to do something. Consideration must be real, valuable and lawful. 

4. Capacity of Parties

The parties to an agreement must be competent to contract; otherwise it cannot be enforced by a court of law. Every person is competent to contract (Section11) who is:

1. of the age of majority
2. ofsound mind and 
3. is not disqualified from contracting by any law.

5. Free Consent

A valid contract not only needs consent but such consent should also be free. Two or more persons are said to consent when they agree on the same thing in the same sense (Section 13). Absence of consent does not create a legal obligation. Moreover, the consent should be freely given, i.e. the parties must enter into the contract voluntarily and out of their own free will. Consent is said to be free if the agreement is not induced by-

1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake

6. Lawful Object

The object of the agreement should be lawful. It should be authorized or sanctioned by law. The object of an agreement is unlawful if it is forbidden by law or is fraudulent or is Immoral or opposed to public policy. 

For example: a "supari' contract for unlawful recovery of money or a smuggling agreement is unlawful hence unenforceable. 

7. Agreement not expressly declared void

The Indian Contract Act, 1872, has expressly declared certain agreements to be not enforceable at law, 

For e.g. agreements in restraint of marriage, agreements in restraint of trade. wagering agreements, etc.

The parties to the agreement should ensure that their agreement does not fall in the category of these void agreements, otherwise the agreement will not be enforceable even if all the other essentials of valid contract are present. 

8. Certainty

The terms of the contract should be certain and definite and not vague. Section 29 says "Agreements, the meaning of which is not certain or capable of being made certain are void."

For example, A agrees to sell B "a hundred tons of oil". There is nothing whatever to show what kind of oil was intended. The agreement is not enforceable because it is vague and uncertain.

9. Possibility of Performance

Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that “An agreement to do an act impossible in itself is void." If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.

For example, A agrees with B to discover treasure by magic. The agreement is void due to impossibility. 

10. Writing and Registration

According to the Indian Contract Act, a contract may be oral or in writing. An oral contract is as much enforceable as a written contract. However, if there is a provision in any law prescribing that contract should be in writing/registered then; this formality of writing and registration should be followed.

For example, in certain special cases the Contract Act prescribes that the contract should be in writing or/and registered. 

Section 25 of the Contract Act requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered. Similarly, certain other Acts also require writing or/and registration to make the agreement enforceable by law which must be complied with. Thus, 

1. an arbitration agreement must be in writing as per the Arbitration Act, 1940.
2. an agreement for a sale of immovable property must be in writing and registered under the Transfer of Property Act, 1882 before they can be legally enforced.

Summary-

The following conditions must be satisfied for an agreement to be enforceable by law:

1. There must be an agreement.

2. The consent of the parties should be free.[Sections 13 & 14]

3. The parties should be competent to contract.[Section 11]

4. There is some consideration for it and the consideration is lawful.[Sections 23 & 25]

5. The object of agreement should be lawful.[Section 10]

6. The agreement must not be hereby expressly declared to be void.[Section 10]

7. The term of the agreement must not be vague or uncertain. [Section 29]

8. The agreement must be capable of performance. [Section 56]

9. Legal formalities. [Section 25(1), (3)]

10. Intention to enter into contract. 

Gift🎁🎁

Essentials of a valid contract- Click here to watch full video

Essentials of a valid contract- click here to watch video