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Essentials of a Valid Contract under the Indian Contract Act

A contract is the basis of a society that is civilized. The legislation on contracts in India is included in the 1872 Indian Contract Act. Plainly defined, a contract implies that if two parties have signed an agreement containing such obligations (promises) to be met by both parties, and if that formal agreement becomes binding by law, it becomes a contract. Enforceable by law implies when only people that are a party to the agreement have attained the power to enforce and a violation of such rights will warrant legal action, along with the repudiation of the whole contract.

In any individual's day-to-day life, contracts play a crucial role. The Indian Contract Act regulates agreements or contracts involving diverse parties. Therefore, understanding the fundamental elements of a legal contract is very necessary because only if those elements are met is the contract claimed to be valid. In section 2(h).

The Indian Contract Act, 1872 describes the term contract as an agreement enforceable by law is a contract. Section 2(e) of the Act defines the agreement, defining the consideration for each other, like any promise. When the individual to whom such a proposal is made gives his approval, the proposal is said to be agreed, then the proposal is said to be accepted and becomes a promise.

An agreement is an agreed promise, and a contract is a law-enforceable agreement. In contract law, there is a promisor (a person who agrees to do something in exchange for consideration) and a promisee (a person who pay such consideration). Section 10 of the Act specifies that if the parties, with legal respect and legitimate object, have given their consent free of force or unreasonable interference, then all agreements are considered to be contractual and such contracts will not be declared void. All contracts are known to be agreements, although not all agreements are contracts.

For reference, A and B agree that A proposed to buy a house from B for Rs 50,00,000, and B accepts the proposal. The agreement is indeed a contract as it is enforceable by law because a proposal has been approved by a party and has been a valid consideration.

Essentials Of A Valid Contract

There are some components that would constitute a legal contract when completed and, prior to that, based on the situation, it would be called voidable. Section-10 of the Act lists such requirements that must be followed in order to constitute a legal contract.

There are seven components that constitute a valid contract, these are as follows:

  1. Offer and Acceptance

    The essence of a contract is Offer and Acceptance. Unless there is an offer and such an offer must be approved, there will be no contract. An offer/proposal is, in compliance with section2(a) of the Contract Act:
    If one person shows to another his desire to do or abstain from doing something in order to obtain the other's consent to such an act or abstinence, he is said to make a proposal.

    The offer must be made by one side, and the other party must agree to such an offer and accept it and Acceptance means that, according to Section 2(b) of the Contract Act, the person to whom the offer was made has given his consent to that offer. Acceptance of the proposal results in agreement-forming promises. In a specific or implicit way, acceptance must be conveyed.

    Such an offer must express the desire to do or abstain from doing so in order to gain the approval of others. The offer may be articulated or implied, but there must be the intention to form a contract and such an offer must be conveyed. Though the agreement is necessary, "Consensus ad-idem" must exist. Consensus ad-idem implies a meeting of minds.

    For example, in order to buy mango, A contracted with B. Now, A wanted a certain sort of mango, but B figured it was a regular mango. While there is a valid acceptance in this situation, there is a lack of meeting of minds between the parties; meeting of minds on the form or condition of mangoes.
  2. Intention to create a legal obligation

    In the Indian Contract Act 1872, there is no explicit clause that makes it necessary to establish legal obligation, but over the years, different rulings have resolved the position making the intention to create legal obligation an important requirement. The purpose of forming legal obligations consists of a party's willingness to recognize the legal implications of entering into an arrangement. In the formation of a contract, it is important that all sides agree to the same thing in the same sense.

    Therefore, if two people enter into an obvious contract with respect to a certain individual or ship, and it turned out that one of them, deceived by the resemblance in the name had in mind another person or ship, there will be no contract between them.
  3. Consideration

    An agreement not endorsed by consideration is invalid, as per section 25 of the Act. Such concern needs to be real and not delusional. A contract​​ without consideration will become Nudum Pactum. There must be no need for the adequacy of this consideration.

    However, Section 25 lays out a few exceptions where an unconsidered exception is not invalid and the instances of such exceptions include an agreement reached between parties on behalf of affection and love, an agreement where it is a commitment to pay, a person who has already done something willingly for the promisor, etc.

    Some essentials for a valid consideration:

    1. It must be at the behest of the Promisor, which means that it must come from the Promisor on its own accord and not from a third party. Subsequently, the fulfillment of a civil obligation is thus not a consideration.
    2. The consideration could be:

      Past consideration whether the promisor has received consideration from another party previous to the date of execution of the contract. Just example paying advance money.

      Present Consideration, whether immediate consideration is given as the contract is made or executed. It is thus often referred to as "executed consideration."

      Future Compensation, if the consideration is paid after the deal has been made. Constructed construction is granted after the execution of the contract in regard to 'construction contracts'.
    3. Consideration is not invalid merely because it is incomplete, except that it is at the will of the Promisor.

      In India, consideration for a contract may flow from the promise or from any third individual who isn't really a party to the agreement, as far as it is at the wish of the promisor, this is called privity of consideration.

      For example, if 'A' promised 'B' to pay Rs. 99 to 'C', a third party. Thus, in the event of a breach of contract, 'A' and 'B' will sue each other.
  4. Competent To Contract

    Any person who is of a sound mind who has reached the age of 18 years and is not excluded by any statute is said to be competent to shape a contract. A minor's contract is invalid ab initio and no liability results from it. A minor can plead in a suit as a defense of his minority, so the promissory estoppel law is not valid.

    An individual is said to be of sound mind according to Section 12 of the Act if he is able to comprehend the terms of the contract and its implications at the time of making the contract and can form a reasonable judgment about it.

    A person does not have to be a lunatic to be labeled unsound mind for the intent of the contract law, plain incapacity to understand the contract terms. When we state that the party must not be excluded by statute, it suggests that, as in the case of an insolvent person, such legislation forbids him from entering into a contract.
    1. Minor:
      A contract, agreed into with or by a minor is void-ab-initio, i.e. no liability shall occur after its creation. Since meeting the age of majority, a contract cannot subsequently be ratified during a party's minority age, so each contract requires independent consideration. If, however, a contract is made for a minor's benefit, then it is a legal contract. In addition, a minor may plead his minority in a suit as a defense, so the law of promissory estoppel is not valid.
    2. Doctrine of Estoppel:
      Estoppel is a rule of law that forbids a person from taking a different position from what he had before a deal was concluded. Thus, when a party A makes a pledge to B that he will buy potatoes grown on his farm, Promissory estoppel means that B will buy potatoes grown on his farm and B grows potatoes accordingly on the assumption that A will buy them. Today, promissory estoppel forbids A from denying that no such thing was promised, or in other words, it prevents him from returning to his pledge and not buying the potatoes.
    3. Unsound Mind:
      A man is said to be of sound mind pursuant to section 12 if he is able to comprehend it at the time the contract was made and is able to form a reasonable judgment on the impact of it on his interests.
  5. Free Consent

    For a legal contract, simple consent is not sufficient; consent must be free. Sec. 13 describes consent as:
    If they agree to the same issue, in the same way, two more parties are said to consent.

    This is also known as the Ad idem Consensus. In the event of the lack of free consent, the deal is invalid. Free consent is, as per Section 14 of the Indian Contract Act, consent that is not gained through coercion, undue influence, fraud, misrepresentation, and mistake.
    1. Coercion: Section 15:
      of the Indian Contract Act of 1872 allows for any activity that is unauthorized or unconstitutional in respect of property or that is forbidden by statute by Indian Penal Code. For starters, a husband pressures his wife to throw acid on her if she doesn't sign the documents. This means coercion because under coercion the contract is a contract that is null.
    2. Undue influence:
      The Indian Contract Act of 1872, section 16, describes a party that exploits its dominant power over the Party by controlling the party.
    3. Fraud:
      The provisions of Article 17 of the Indian contract law of 1872 are specified where, in the absence of an unwillingness and benefit, the conditions offered by one party before the other Party causes harm. If the false declaration is made, if any false promises made without the intent to do so are withheld then if the other party behaves of deception are made, the act would be a crime in order to do so.
    4. Misrepresentation:
      Section 18 of the Indian Contract Act, 1872 describes it to represent the truth inaccurate without the knowledge of the other party or to mislead him. The faction is innocent of misrepresentation, and it did so without being aware of it.
    5. Mistake:
      Mistake of Fact or is specified under Sections 20 and 21 of the Indian Contract Act, 1872 If either or both parties make some mistake (fact or law) leading to an invalid contract. For instance, if X tries to enter into a contract with A to sell the car but erroneously enters into a contract with D assuming that he is A and sells the car to him. It has, thus, been an invalid contract.
  6. The object of the contract must be lawful

    In Sec. 23 of the Act, unlawful consideration is specified. The improper object or intention is one that is either prohibited by law or has the power to defeat the rule of law or includes harm to the body or property of an individual or the court finds the object of the contract as being dishonest against public policy or the intent of the contract. The object of the contract must be legitimate for a legal contract and must not slip under any of these.
  7. It must not be clearly declared as void

    There are few contracts explicitly deemed void by the Indian Contract Act 1872. Contract in marriage restriction, contract in trade restraint, etc. are a few examples of such contracts. It must not be explicitly declared invalid by the Indian Contract Act 1872 or any other statute in effect in order for a contract to be valid.
Under the Indian Contract Act, 1872, as is set out below, those contracts are declared void:
  • Restraint agreement for marriage (Section 26).
  • Agreement on Trade Restraint (Section 27).
  • Agreement to restrict legal proceedings (Section 28).
  • Agreement of unspecified meaning (Section 29).
  • Agreement on Wagering (Section 30).

There are the most relevant and foundational conditions for the existence of contracts that must be met in order to render a contract a legal contract. In conclusion, it may be assumed that a contract is an arrangement that is technically enforceable. When it fulfills those requirements, an agreement becomes enforceable. The 'essentials of a legal contract' can be considered these conditions. In the eyes of the statute, where any of the essentials are absent, the contract is null, voidable, unconstitutional, or unenforceable.
  1. (visited on 10 May)
  2. (visited on 10 May)
Written By: Shruti Sharma - NLU Nagpur

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