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Essentials of a Valid Contract under the Indian Contract Act, 1872

In today world it's common to use the word contract. On daily basis, we enter into a contract without knowing its essential elements for a legally valid contract. As the set of promises between two friends, brother, family members etc they consider it as a contract. But when comes to the legality of word Contract, there are some essential condition/requirements which need to be fulfilled to create a valid contract.

Firstly, let's understand What is Contract? in legal terms.

As per section 2(h) of Indian Contract Act 1872 (hereinafter referred to as ICA, 1872) An agreement enforceable by law contracts. So, itís difficult for a non-legal person to understand contact on the first look.

Pollock- Every agreement and promise enforceable by law is a contract.

In simple way, Contract = Agreement + Enforceability

So, let's come too deep into our topic Essentials of a Valid Contract under the Indian Contract Act, 1872.

Section 10 of ICA, 1872 define what agreement constitute to be a contract or we can say what is a condition for a contract to be valid or enforceable by law.

Offer

The first step toward the contract is an offer by either party. The condition of the offer is not applied in some cases. As Mulla in his book talks about the situation in which offer and acceptance canít be traced, the commercial agreement reached by parties after negotiations.

As per section 2(a) of ICA, 1872 an offer or proposal is:

When one person signifies to another his willingness to do or to 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.

In simple term. When a person makes an offer/proposal to another person to do something or not to do something, to obtain the other party consent/assent to do something or not to do something is making an offer.

Section 2 (c) of ICA, 1872: The person who offers or makes a proposal is known as offeror or proposer. The second party to whom an offer or proposal is made is known as offeree or proposee.

Condition for a valid offer:

  1. The offer must be legal. The act offeror is offering to the offeree, it must be lawful, it does not demand another party to do something or not to do something illegal
  2. Proper communication between the offeror and offeree, the offer must be communicated to the offeree with a reasonable mode of communication
  3. The offer must be clear. The offer, an offeror is making to the offeree it must be clear in meaning, it should not be ambiguous.
  4. The intention of making an offer. An offer is placed to get other partiesí acceptance.
  5. Offer can be of two types. a) Express offer is made in words. b) Implied offers are implied from the act or conducts of the offeror.

Offer and Invitation to Offer

This term in first look like same but, there is difference between the two-term. Offer that we were already discussed. Letís discuss the invitation to offer.

In simple terms, Invitation to offer mean Invitation to make an offer or Someone is inviting you to make an offer.

This type of situation generally includes Advertisement, goods displayed on workshops, tenders and auctions.

Illustration:
ĎAí is a bookseller, he displayed many different types of book on the glass of his shop. In this case, ĎAí is inviting you to make an offer or we can say invitation to offer.

Acceptance

The second step towards the essential of a valid contract is ĎAcceptanceí.

Acceptance is defined under section 2(d) of ICA, 1872 as, When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

In simple term, A person to whom an offer or proposal is made, he/she signifies his/her assent/consent to do something or not to do something is acceptance.

Once the offeror makes an offer to the offeree and the offeree communicated his/her acceptance to the offeror, now the parties are bound by their promises.

*If a person performs any act in line with an offer, without awareness about the offer or in ignorance of the offer. It does not consider an acceptance. Acceptance must be communicated to the offeror by the offeree.

Related case:
In Lalman Shukla v Gauri Dutta (1913),Click here Plaintiff (Lalman Shukla) is the servant of the defendantís (Gauri Datta) sent his servant in search of a boy, meanwhile defendant made an offer whosever will find the boy will get a certain amount. Plaintiff finds the boy. Plaintiff later got to know about the offer and he asked for the amount to the defendant, which he denied. He filed a case, the court ruled that the performance of an act by the plaintiff was ignorant of offer and thus no acceptance and no set of promises, so the plaintiff canít claim the amount.

Conditions for a valid acceptance:

  1. Acceptance must be clear, absolute and unqualified unconditional.
  2. Acceptance must be in line with the offer only.
  3. Acceptance must be through the reasonable mode of communication or must be adhered to the mode prescribed by the offeror.
  4. Communication of acceptance by a third person or stranger is not valid. If the offeror describes any specific person through whom acceptance is communicated, the offeree must obey it.

Some important elements for Offer and Acceptance:

  1. Consensus Ad-idem:
    Meeting of minds in the same sense. All the obligation of the contracts is accepted in the same sense.

    Illustration:
    A is the owner of two white colour cars, one cost 7,00,000(Maruti) other 10,00,000(Hyundai), enter into a contract of sell with B, who unawares of fact that A has two cars of the same colour. An offer to B that, he wants to sell his white colour cars for INR 6,00,000 (did not mention which one of the two). B thought, Aís talking about Hyundai car, but he is talking about Maruti. In this case meeting of minds is not present, it will consider a void contract.
     
  2. Free consent:
    As per section 10 of ICA,1872 for a contract to be valid, Acceptance must with free consent without any force or influence
    • later part of this topic in details talks about free consent and factors vitiating free consent.
    • Contract must be clear and specified, it must not be vague or ambiguous.

Intention to create legal relation

We have disused the steps to enter into a contract. Now the next important thing is intention.
Parties to the contract (offeror and offeree) must be intended to create a legal relation or must intend to enter into the contract.

Consideration

Consideration is essential component to form an valid contract.

Section 2(d) of ICA, 1872 define consideration as:
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.

In simple term Consideration means, when a person promises to do or abstain from doing something to other people in return for something is called Consideration.
In other terms, Something for something or Something in return i.e., a legal maxim Quid pro quo.

Pollock: the price for which the promise of the other is bought, and the promise thus given for value is enforceable.

Essentials of a valid consideration:

Promise to do or not to do any/all act at the desire of promisor only.

Consideration can be of two Types:

  1. Past Consideration
  2. Present Consideration (Executed Consideration)
  3. Future Consideration
  4. Consideration must be legal/lawful.
  5. Consideration must not for the act that is impossible to perform.
  6. Consideration must be for the real or reasonable thing. Must not be illusionary or irrational.

Free Consent

Section 10 of ICA, 1872 talks about free consent, it states that all agreement contracts, if they are made by the free consent of the parties.
  • If consent for the contract or acceptance is not free, the contract is invalid.

Section 14 talks about factors that affect the Free consent of a valid contract

  1. Coercion (Section 15):
    When consent is given under coercion then it will not consider as free consent. Coercion means committing or threatening to commit any act which is forbidden or unlawful as per the Indian Penal Code 1960. Examples, Detaining the person unlawfully, threatening to physically harm someone.
     
  2. Undue influence (Section 16):
    The consent is obtained under the influence of higher or power full authority is considered as under influence. If consent is given under undue influence is not consider free consent and the contract is invalid.
     
  3. Fraud (Section 17):
    A person intentionally makes a false statement and makes other people believe that to be true and by fraud, means enters into a contract is considered to be an invalid contract.
     
  4. Misrepresentation (section 18):
    A person unintentionally makes any offer, believing on facts to be true which are not true and offeror and offeree both unaware of true fact and on basis of false facts, they enter into a contract, Contract is considered to be invalid.
     
  5. The mistake is divided into two parts:
    1. Mistake of Facts (Section 20), when both the parties of the contract under the mistake of facts, then contract is said to be void.
      *Ignorantia Facti Excusat means ignorance of facts is an excuse.
      1. Bilateral Mistake: Section 20 will apply when both the parties to the contract are under a mistake of facts.
      2. Unilateral Mistake: Section 21 says a contract cannot be avoided if there is a mistake on part of one party only.
        *However, there are some exceptions to this, like if taken under fraud or misrepresentation.
         
    2. Mistake of law:
      A contract made under a mistake of law will be treated as a valid Contract.
      *ignorantia juris non excusat means Ignorance of the law is not an excuse.

Agreement

As per Section 2(e) of ICA, 1872 Every promise and every set of promises, forming the consideration for each other, is an agreement.
In simple term, when two person promises each other something with due consideration is an agreement.

Essential of an agreement:
  1.  There must be two or more parties to form an agreement
  2. There must be an offer or proposal
  3. Offer must be accepted by the offeree to enter into an agreement.
  4. Consideration is a must for an agreement.
  5. An agreement must be entered with the free consent of the parties.
Agreement = Parties + offer (acceptance with free consent) + Consideration.

There are some void agreements, if an agreement involves such things, a contract will become void.
  1. Restriction on marriage (Section 26
  2. Restriction on trade (Section 27)
  3. Restriction on legal proceedings (Section 28)
  4. Void due to uncertainty (Section 29)
  5. Wager agreements (Section 30)
Conclusion:
A contract must include the basic elements to treat a contract as a valid contract in the eye of law. As we have discussed the basic element for a contract to be valid. A contract must have adhered to a line of basic elements. However, there are some special laws for special circumstance will be placed. But your contract must be followed to above aforesaid basic element. A contract must not include vitiating factors that aforementioned in an article.

References:
  1. Section 2 (h), Indian Contact Act, 1872. (https://indiankanoon.org/doc/1890444/
  2. Section 2 (e), Indian Contact Act, 1872. (https://indiankanoon.org/doc/1089645/)
  3. Mulla, Indian Contract Act, 1872 Pg. no. 26
  4. https://blog.ipleaders.in/essentials-of-a-valid-contract/#_edn2
  5. Section 2 (a), Indian Contact Act, 1872. (https://indiankanoon.org/doc/420719/)
  6. Section 2(d), Indian Contact Act, 1872. ( https://indiankanoon.org/doc/877630/)
  7. Section 2(c) in The Indian Contract Act, 1872. (https://indiankanoon.org/doc/595840/)
  8. Section 15, 16, 17, 18, 20, Indian Contract Act, 1872 (https://blog.ipleaders.in/elements-vitiating-free-consent-contract/)
  9. Section 21 in The Indian Contract Act, 1872. (https://indiankanoon.org/doc/626336/)
  10. Section 26, 27, 28, 28, 29, 30, Indian Contract Act, 1872. (https://legalacharya.com/lawoftheland/void-agreements-section-26-30-indian-contract-act-1872/)

    Award Winning Article Is Written By: Mr.Dipendra Singh Tomar
    Awarded certificate of Excellence
    Authentication No: MA34128251363-23-0521

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