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Essentials of a Valid Contract

Under the Indian Contract Act, 1872 Section 2(h) (a) provides that any agreement that is enforceable by law is a contract. Agreement in simple terms, can be defined as a promise. Even though all contracts are agreements but all agreements are not contracts. A promise must fulfil the required principles like, competency of both parties, free consent, where the consideration and objective of agreement should not be expressly declared as void in the eyes law, all these essentials should be fulfilled for a contract to be valid. Apart from the above stated essentials, it is important that the people being a part of the contract should have the intentions, readiness and a positive attitude towards being a part of that contract.

According to, Balfour v. Balfour - The court held that, an intention to create a legal relationship is considered as an essential element of contract, stating that a matrimonial dispute cannot be treated as a legal matter in the courts.

Essentials:
  1. Offer/Proposal and Acceptance:
    Offering or proposing should be the first step in a contract formation. When a person expresses his consent and wants for doing something specific or not, this is known as an Offer, under Section 2 (a) of the Indian Contract Act 1872. The person who makes a proposal is known as the offeror and the person to whom that offer is made is called the offeree.

    The offer should be made, in such a way, that there is a clear intention to form a legal relationship with the other. A reply given to an offer, is known as Acceptance, according to Section 2 (b) of the Indian Contract Act, 1872. By saying yes, ok or I agree to this proposal, constitutes accepting of that offer. Importantly, the proposal and acceptance must be clear and certain, without which the contract will be invalid.

    According to an English case, Carlill v. Carbolic Smoke Ball Co. - The offer should be clearly communicated to the other party.

    In another case, Lalman Shukla v. Gauri Dutt - The court held that, offeree should be well aware of the facts of the offer made to him. Where the court made it clear that, acceptance of the known offer is an important ingredient for the contract to be valid.
     
  2. Consideration:
    Consideration is an important factor for a contract to be legal defined under Section 2 (d) of the Indian Contract Act, 1872. A contract without consideration is invalid, since it cannot be legally enforceable. Consideration basically means the "compensation" for this offer. In the absence of compensation, one party receives something from the other, but that party does not give anything in return.

    Therefore, the consideration should always be mutual, in simple words, the party who receives something must give something to the other party in return as well. An exemption to this rule is that if a written and registered agreement is made out of natural love and affection it will not be illegal, even when it is without a consideration. Consideration does not have to be rational or adequate, but it should be real, which can be given the past, present, or future, is certainly not against the public morals.

    According to, Durga Prasad v. Baldeo - The court provided the importance of consideration for a valid contract, in its absence the contract will not be enforceable by law.
     
  3. Capacity to Contract:
    A person who has reached the legal age, that is, the age of 18, is legally competent to be a part of contract. The exception to this rule is that if a minor enters into a contract and the contract is beneficial to the minor, it will still be legal. Apart from that, one should also have a sound mind so that, they can analyze the offer and make the right decision, where they should not be disqualified by any applicable law.

    The following are not competent to be a part of any contract:
    • A minor
    • Persons with unsound mind
    • Persons disqualified by any applicable law
    According to the case, Mohori Bibee v. Dharmodas Ghose - The Privy Council held that, any contract entered with a minor is 'Void Ab Intio'. Since, minors are not competent to be a part of contract so, such contracts having minors being a part of it will not be valid in the eyes of law.
     
  4. Consent:
    Consent is another important criterion for the enforcement of legal agreements. When two people accept or agree on the same thing in the same spirit, this is known as consent under Section 13 (a) of Indian Contract Act, 1872. The will of the parties should be free and not should not be acquired by coercion, undue influence, misrepresentation, fraud or mistake. If the consent is not free, and is obtained by any of the above stated circumstances or effects, the contract becomes voidable or optional for person whose consent was not free to be accept it or not.
     
  5. Unlawful Agreements:
    If the objective of an agreement is for acquiring something illegal, then the contract becomes void. The outcome of an agreement should never be illegal, immoral or opposing to the public policy for it to be lawful.

    1. Wagering Agreements:
      According to the Indian Contract Act, agreements made through betting are not enforceable and are therefore illegal. Wager is a type of contract wherein, a person promises to pay the other person, on the occurrence of an indefinite event, and the other person promises to pay on the non-occurrence of the event. Simply, this contract is based on a mutual promise, like a bet where a promise depends on the occurrence of an incident.
       
    2. Contingent Contract:
      Contingent contract, simply known as Conditional contract, which is conditioned upon something to be done or not done and on the occurrence or non-occurrence of an event, that provides a security to the contract. Contingent contracts cannot be enforced until an uncertain future incident occurs. The contingent contracts become void, if that uncertain future event does not occur.

Conclusion;
In conclusion, it can be understood that, a contract is an agreement as per Section 2 (h) of the Indian Contract Act, 1872 being enforceable by law. For a contract to be valid, more than one person should be involved, where one party makes an offer and the other party accepts it. When the parties enter into the Contract then, all relevant facts must be disclosed to prevent any kind of intentional misunderstanding of the terms of the contract.

Therefore, in order for a contract to be valid, an agreement is required, which must be based on the principle of free consent for the contracting parties, having a legitimate balance, where the subject matter is legal, and the parties in the contract are having clear intentions to participate.

Written By: Manav Puri, BBA. LLB. (Hons.), MIT-WPU, Pune

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