Date : 14-06-2018 23:22
What is Contract?
According to Sec: 2 (e) & (f) of Indian Contract Act, 1872, “Every promise and every set of promises, forming the consideration for each other is an agreement. Such agreement which is enforceable by law is a contract”. Section 9 tells that a contract can be expressed as well as implied.
A contract is a part of the business so that it can be carried on harmoniously. Contracts are formed between employers and employees which are employment contracts. Sec: 10 of Indian Contract Act, 1872 tells us what forms the part of the legally binding contract. The five components of forming a legally binding contract are an offer, acceptance, competent parties, lawful consideration, and lawful object.
5 Steps to Forming a Legally Binding Contract:
1. Offer: It must be clearly stated to all the parties about the expectations and intentions to enter into a contract. This basically states what a party wants to do or not to do upon agreement of the contract. One party should make an offer to the other party for the performance of a duty or providing a service.
2. Lawful object: It refers to the intention of the parties. The contract has to adhere to the laws as the agreement of which the object is unlawful, is void as per sec: 23 of Indian Contract Act, 1872. For example, A and B enter into an agreement for the division of gain acquired by them by fraud. The agreement is void, as its object is unlawful. The agreement will be void if the object is forbidden by law, or of such nature that it would defeat the provision of any law; or is fraudulent, or involves injury to person or property of another, or court regards it as immoral or opposed to public policy.
3. Lawful consideration: To create a contract, consideration must exist. When the obligations of the contract are fulfilled, one party receives consideration from another party. It can be in form of money or services or anything that is to be considered of value. The requirements of Section: 23 of Indian Contract Act, 1872 has to be taken into account in order to make consideration lawful.
4. Parties Competent to Contract: Every person is competent to contract who is of the age of majority according to the law which he/she is subject to i.e. 18 years. Also, a person has to be of sound mind for the purpose of making a contract i.e. he must be capable of understanding the contract at the time of making it. Also, the person should not be disqualified from contracting by any law to which he/she is subject to.
5. Acceptance: The last step of any contract is the acceptance which means the contract has been created. A contract becomes valid when the accepting party agrees to its provisions. It depends on the nature of the contract whether it should be accepted orally or in writing. If the contract is being accepted orally then parties have to agree to the terms to make the contract exist. In a written contract the parties will have to sign the written document which ensures acceptance of the terms. The acceptance must be voluntary which means the person signing the contract must be signing it with free consent. The consent is said to be free when it is not caused by coercion or undue influence or fraud or misrepresentation or mistake. If the consent is brought through these methods then the contract is not legally binding. The parties must agree to terms of the contract without getting influenced by outside factors.