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Essentials of A Contract

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11 views

Essentials of A Contract

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hundaiaccent2002
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Essentials of a Contract

What makes a valid contract? A valid contract is enforceable by law and


if a contract is not valid it may lead to obstruction of businesses and
unlawful and insincere dealings. Let us learn about the essential features
of a valid contract.

Essentials of a Valid Contract


A contract that is not a valid contract will have many problems for the
parties involved. For this reason, we must be fully aware of the
various elements of a valid contract. In other words, here we shall
ponder on all the ramifications of the definition of the contract as
provided by The Indian Contract Act, 1872.

The Indian Contract Act, 1872 itself defines and lists the Essentials of a
Contract either directly or through interpretation through
various judgments of the Indian judiciary. Section 10 of the contract
enumerates certain points that are essential for valid contracts like Free
consent, Competency Of the parties, Lawful consideration, etc.

Other than these there are some we can interpret from the context of the
contract which is also essential Let us see.

1] Two Parties
So you decide to sell your car to yourself! Let us say to avoid tax or
some other sinister purpose. Will that be possible? Can you have a
contract with yourself? The answer is no, unfortunately. You can’t get
into a contract with yourself.

A Valid Contract must involve at least two parties identified by the


contact. One of these parties will make the proposal and the other is the
party that shall eventually accept it. Both the parties must have either
what is known as a legal existence e.g. companies,
schools, organizations, etc. or must be natural persons.

For Example: In the case State of Gujarat vs Ramanlal S & Co. –


A business partnership was dissolved and assets were distributed among
the partners as per the settlement. However, all transactions that fall
under a contract are liable for taxation by the office of the State Sales
Tax Officer. However, the court held that this transaction was not a sale
because the parties involved were business partners and thus joint
owners. For a sale, we need a buyer (party one) and a seller (party two)
which must be different people.

2] Intent Of Legal Obligations

The parties that are subject to a contract must have clear intentions of
creating a legal relationship between them. What this means is those
agreements that are not enforceable by the law e.g. social or domestic
agreements between relatives or neighbors are not enforceable in a court
of law and thus any such agreement can’t become a valid contract.

3] Case Specific Contracts

Some contracts have special conditions that if not observed would


render them invalid or void. For example, the Contract of Insurance is
not a valid contract unless it is in the written form.
Similarly, in the case of contracts like contracts for immovable
properties, registration of contract is necessary under the law for these
to be valid.

4] Certainty of Meaning

Consider this statement “I agree to pay Mr. X a desirable amount for his
house at so and so location”. Is this a valid contract even if all the
parties agree to this term? Of course, it can’t be as “desirable amount” is
not well defined and has no certainty of meaning. Thus we say that a
valid contract must have certainty of Meaning.

5] Possibility Of Performance Of an Agreement

Suppose two people decide to get into an agreement where a person A


agrees to bring back the person B’s dead relative back to life. Even
when all the parties agree and all other conditions of a contract are
satisfied, this is not valid because bringing someone back from the dead
is an impossible task. Thus the agreement is not possible to be enforced
and the contract is not valid.

6] Free Consent

Consent is crucial for an agreement and thus for a valid contract. If two
people reach a similar agreement in the same sense, they are said to
consent to the promise. However, for a valid contract, we must
have free consent which means that the two parties must have reached
consent without either of them being influenced, coerced,
misrepresented or tricked into it. In other words, we say that if the
consent of either of the parties is vitiated knowingly or by mistake, the
contract between the parties is no longer valid.

7] Competency Of the Parties


Section 11 of the Indian Contract Act, 1872 is:

“Who are competent to contract — Every person is competent to


contract who is (1) of the age of majority according to the law to which
he is subject, and who is (2) of sound mind and is (3) not disqualified
from contracting by any law to which he is subject.”

Let us see these qualifications in detail:

i. refers to the fact that the person must be at least 18 years old or
more.
ii. means that the party or the person should be able to fully
understand the terms or promises of the contract at the time of the
formulation of the contract.
iii. states that the party should not be disqualified by any other legal
ramifications. For example, if the person is a convict, a foreign
sovereign, or an alien enemy, etc., they may not enter into a contract.
8] Consideration

Quid Pro Quo means ‘something in return’ which means that the parties
must accrue in the form of some profit, rights, interest, etc. or seem to
have some form of valuable “consideration”.

For example, if you decide to sell your watch for Rs. 500 to your friend,
then your promise to give the rights to the watch to your friend is a
consideration for your friend. Also, your friend’s promise to pay Rs.
500 is a consideration for you.

9] Lawful Consideration

In Section 23 of the Act, the unlawful considerations are defined as all


those which:
i. it is forbidden by law.
ii. is of such a nature that, if permitted, it would defeat the provisions
of any law, or is fraudulent.
iii. involves or implies, injury to the person or property of another
iv. the Court regards it as immoral or opposed to public policy
These conditions will render the agreement illegal.

Solved Example on Valid Contracts


Q: A agrees to help B build his house since they are friends. Is this a
contract?

Ans: No this is not a contract. There is intention between A and B to


create a legal relation, which is an essential of a contract. Hence this is
not a contract in the eyes of the law.

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