Essential Elements of a Valid Contract
All the Essential elements of a valid contract are briefly discussed below.
Offer and Acceptance
While entering into a contract, there must be two parties. One party makes an offer. The other party accepts the offer.
Offer
According to section 2(a) of the Indian Contract Act 1872, an offer is made when someone offers to do or does not do something.
- Example - When Ram proposes to sell his house to Sham. Here, an offer is made.
- An offer made should be clear, concise, and definite.
- It should be properly communicated and duly understood by the other party.
- The offer must be lawful and legal.
Acceptance
Section 2(b) of the Indian Contract Act defines acceptance as when one party makes the offer, and the other party accepts it is called acceptance.
- The party to whom the offer is made gives his assent, and then it is said the offer is accepted.
- The acceptance of the offer should be properly communicated to the offeror.
- The acceptance should not be ambiguous.
Lawful Consideration
Section 2(c) of the Indian Contract Act 1872 defines the consideration. The consideration in a contract must be valid and lawful.
- Consideration is when both parties agree to do or not to do something.
- The consideration in a contract can be present, past, or future.
- Lawful consideration helps to abstain from unlawful activities in a contract.
- Agreements which have unlawful consideration are void.
- Past consideration - A person can enter into an agreement for which he has performed certain activities.
- Future consideration - When both parties agree to do or not to do certain things in the future, it is said to be a future consideration.
- Present consideration - When both parties enter into a contract and presently decide to do or not to do something, it is called present consideration.
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Intention To Create A Legal Relationship
When different parties enter the contract, a legal affinity is created among them. This legal link is enforceable by law.
- Section 2(h) of the Indian Contract Act 1872 defines that agreements enforceable by law are valid contracts.
- Agreements between family members like husband and wife and father and son do not create a legal affinity unless the legality of the relationship is Expressed.
- When the agreement creates a legal obligation, it becomes a contract.
The Capacity of the Parties
The Indian Contract Act 1872 does not prohibit anyone from entering into a contract. But this act defines certain persons as incapable of entering into a contract. The Indian Contract Act specifically mentions who is capable of entering into a contract, which has been discussed below.
Major
- A person who has achieved the age of majority.
- According to the Indian Majority Act, section 3 defines a person who has achieved the age of 18 as a major.
Sound Mind
- The person entering into a contract must have a sound mind.
- Entering into a contract with someone with an unsound mind is invalid.
- Some people have unsound minds. These persons can only make a contract when they are of sound mind.
Not Prohibited By Law
- A person who is prohibited by law cannot enter into a contract.
- Convicts and insolvent persons cannot enter into a contract.
- A person recognized as incompetent to enter into a contract by a court of law.
Free Consent
Both parties entering into a contract must enter into a contract of their free will. Section 13 of the Indian Contract Act 1872 states that consent is a contract's most important requirement. When all the parties to a contract agree on the same thing in the same sense, it is said to be free consent.
A contract is said to be free consent when it is free from the following.
Coercion
- Section 15 of the Indian Contract Act 1872 defines coercion.
- When one party threatens the other to enter into a contract, it is an offense under the Indian Penal Code.
- A contract under coercion can be voidable by the aggrieved party.
Undue Influence
- Section 16 of the Indian Contract Act 1872 defines undue influence.
- A person using his power to make the other person enter a contract is called undue influence.
- Here, the person who has the power dominates the other person.
- It could be between employer and employee & husband and wife.
Fraud
- Section 17 of the Indian Contract Act defines fraud.
- When one person knows that the fact is not true but still conceals the fact actively to enter into a contract, it is regarded as fraud.
Misrepresentation
- Section 18 of the Indian Contract Act defines misrepresentation.
- When one party misleads the other party and makes them believe something is true, it is called misrepresentation of facts.
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Mistake
- Section 20,21 and 22 of the Indian Contract Act covers the mistake.
- Mistakes can be bilateral or unilateral.
- Bilateral - When both parties have made a factual mistake in a contract, it is said to be a bilateral mistake. Here, the whole contract is void. The whole purpose and object of the contract are lost due to the mistake committed by both parties.
- Unilateral - When one party makes a factual mistake in a contract, it is called a unilateral mistake.
Lawful Object
The contract that is formed between the two parties must have a lawful object. Without a lawful object, a contract is not valid at all. This helps in minimizing unlawful or illegal objectives.
Section 23 of the Indian Contract Act 1872 very clearly defines the acts which are lawful or unlawful.
- If the law forbids it.
- If it is contradictory to the present law.
- Suppose it contains any injury to a person's property. The injury could be a physical, mental, legal injury, or harmful to a person's reputation.
- If the act is Immoral or unjust.
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Agreement Not Expressly Declared To Be Void
- Section 23 - Section 23 defines the unlawful agreements or considerations that are forbidden by the law. If the act impacts or causes any injury to the person or property, it is void in nature.
- Section 11 - Contract with a minor is the person who has been prohibited by the law. Also, a contract with a person who has an unsound mind is void. When a person has a few unsound mind, and the contract is made during the unsound mind, it is void.
- Section 29 - The action and agreement which do not have any certainty are void.
Possibility Of Performance
Section 56 of the Indian Contract Act 1872 States that an agreement when the performance is impossible to perform in the contract is invalid.
The impossibility of performance in a contract arises when the object of the contract is completely lost.
Certainty Of Meaning
- All the parties to a contract must agree on the same thing in the same sense.
- The contract must be properly shared among the parties.
- Any miscommunication or learning of other senses that are not valid.
Legal Formalities
- Both parties can enter into a contract in writing or orally.
- There are specific situations where the contract must be in writing, registered, and have one witness.
- In many cases, the legal civilities of a contract also decide the validity of a contract.
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