The Essential Elements of A Valid Contract
There
are certain elements of a valid contract. These elements should be kept in mind
while entering into the contract. Generally, there are 10 Essential elements of
a valid contract. The 10 elements of a valid contract are stated below.
- Offer and
acceptance
- Lawful object
- Agreement not
expressly declared to be void
- Intention to create
a legal affinity
- Free consent
- The capacity of the
parties to contract
- Certainty of
meaning
- Possibility of
performance
- Lawful
consideration
- Legal formalities
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.
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.
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.
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.
o Examples of a Valid Contract
o
There are a few examples of valid contracts stated
below to understand the concept fully.
o Offer And Acceptance
o
When John makes an offer to sell his house to Lily
and Lilly accepts, the offer is said to be a valid offer. Here, the offer and
the approval are made properly.
o They Must Agree On The Same Thing In The Same Sense
o
Ram made an offer to Sham to sell his car. Sham
accepted the offer. But Sham agreed to purchase Ram's blue car while Ram
offered to sell his red car. Due to wrong contact, Both parties agreed on
different things. Due to this reason, this contract is not valid.
o Unlawful Object
o
It is not a valid contract when Mr. X agrees to
sell narcotics to Mr. Y for Rs 10000. This contract cannot be enforceable by
law.
Conclusion
Knowingly or unknowingly, every person in their daily life enters into a contract. Every single person should be aware of the Essential elements of a contract. This will help to avoid prudent losses and unprofitable Deals. Facts about the Essential elements of a contract helps protect the interest of the parties in the contract. This also helps in feeding remedies in case of breach of contract.
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